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SMALL BUSINESS AND HURRICANE KATRINA:

REBUILDING THE ECONOMY

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, OCTOBER 7, 2005

Serial No. 109–34

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Barreto, The Honorable Hector V., Administrator, U.S. Small Business Administration .......................................................................................................... 5

Brennan, Mr. Ralph, Owner, Ralph Brennan Restaurant Group ........................ 32

Ryan, Ms. Rae Ann, President, Travel Affiliates .................................................. 34

Perkins, Mr. Randy, Co-Owner, Perkins Productions, Inc. .................................. 35

Williams, Mr. Guy T., President, Gulf Coast Bank and Trust ............................ 37

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 45

Velazquez, Hon. Nydia ..................................................................................... 47

Christensen, Hon. Donna M. ........................................................................... 49

Sanchez, Hon. Linda T. .................................................................................... 51

Prepared statements: 

Barreto, The Honorable Hector V., Administrator, U.S. Small Business 

Administration .............................................................................................. 55

Brennan, Mr. Ralph, Owner, Ralph Brennan Restaurant Group ................ 62

Ryan, Ms. Rae Ann, President, Travel Affiliates ........................................... 65

Perkins, Mr. Randy, Co-Owner, Perkins Productions, Inc. ........................... 70

Williams, Mr. Guy T., President, Gulf Coast Bank and Trust ..................... 73

Additional Material: 

National Association of Women Business Owners ......................................... 86

(III) 

(1)

SMALL BUSINESS AND HURRICANE KATRINA: 

REBUILDING THE ECONOMY 

FRIDAY, OCTOBER 7, 2005

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The subcommittee met, pursuant to call, at 10:30 a.m., in Room 

2360 Rayburn House Office Building, Honorable Don Manzullo 

[Chairman of the committee] presiding. 

Present: Representatives Manzullo, Bartlett, Kelly Musgrave, 

Sodrel, Fortenberry, Fitzpatrick, Gohmert, Velazquez, Lipinski, 

Grijalva, Sanchez, Bean and Moore 

Also Present: Representatives Melancon and Taylor. 

Mr. MANZULLO. Good morning. I welcome everyone to the Committee’s hearing on the impact of the recent hurricanes on small 

businesses located in the Gulf Coast region. There are a number 

of small business owners from the affected areas who deserve special praise from taking time away from more pressing problems to 

enlighten the Committee about the situation in the Gulf and the 

assistance they may need in rebuilding their businesses and the 

economies in the area. I also want to thank the SBA Administrator 

for moving his schedule around to make himself available this 

morning. Hector, hopefully you received some sleep during your 

red-eye flight from Los Angeles. Unfortunately, we were not able 

to have a witness from the Department of Homeland Security to 

testify about hurricane recovery procurements for local small businesses because their top officials are at a conference in New Orleans right now informing small businesses about contracting opportunities. 

Early Monday, August 29, Hurricane Katrina made landfall in 

the Gulf Coast region of Mississippi. The strength of the hurricane 

devastated the Gulfport and Biloxi areas. But Katrina’s damage 

did not end there; the strength of the storm caused substantial 

breeches to the levee system protecting New Orleans flooding nearly 80 percent of the city, forcing the greatest mass migration of 

people in this country since the Dust Bowl emptied the Great 

Plains in the 1930s, and washing away thousands of small businesses that were the cornerstone of the economy. 

Already traumatized by Katrina, the residents then had to deal 

with Hurricane Rita. At one point, the storm was described as a 

tornado the size of Georgia. Fortunately, Rita weakened substantially before it made landfall on September 24. Nevertheless, the 

storm inundated low-lying regions of Southwestern Louisiana and 

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eastern Texas, including areas in Mr. Poe’s district, a valued Member of this committee. 

This hearing is not about recriminations or what should have 

been done better in the immediate response to Hurricanes Katrina 

and Rita. This hearing will examine the disaster assistance provided by the SBA and look to the future needs of small business 

owners as they try to rebuild their establishments and the economy 

of the Gulf Coast. 

In a meeting with Herb Mitchell, the dedicated public servant in 

charge of the Office of Disaster Assistance at the SBA, he noted 

that more than 700,000 people registered to obtain assistance from 

the federal government as a result of Katrina. That number certainly has increased significantly since then to over 1.6 million referrals or inquiries after the destruction wrought by Hurricane 

Rita. The Office of Disaster Assistance at the SBA is one of the 

government’s primary focal points for providing assistance to homeowners and small businesses through its disaster loan program. 

And while not all of those who registered for assistance will receive 

a loan from the SBA, the numbers that the Office of Disaster Assistance deal with is simply staggering. Compare that to the 

Northridge earthquake, which ended up with 125,000 loans, juxtapose that against the sheer number of applications and inquiries 

here. 

I recently visited Baton Rouge, and I saw dedicated public servants from the SBA working tirelessly to assist small businesses 

devastated by Hurricane Katrina. I also saw small business owners 

who remained optimistic that their innate resilience will enable 

them to lead the rebuilding of their communities and shattered 

economies. The role of the government in this circumstance is not 

to smother the workers trying to provide assistance or hinder the 

efforts of small business owners wanting to rebuild. Rather, government assistance should be limited to absolute minimum needed 

to ensure that public servants can do their jobs and small business 

owners have adequate resources, combined with those from the private sector, to rebuild. 

No one can deny that certain assistance is necessary. For example, temporary suspension of payment of SBA loan payments 

makes sense because it will be some time before many businesses 

will have a customer base. Similarly, an increase in the size of SBA 

disaster loans will be needed. What is unacceptable is using this 

disaster to spend precious taxpayer funds to dramatically expand 

the SBA and other government programs for initiatives that only 

tangentially relate to Katrina and Rita just so we think that we are 

doing something to provide hurricane relief. For example, I have 

specific concerns about allowing a long-term deferral of payment of 

interest on disaster loans because that will dramatically drive up 

the cost of the disaster loan program to the U.S. taxpayer and 

would set a negative precedent for other natural disasters. The victims of the devastating 1993 Mississippi River floods in the Midwest did not have this benefit and they survived. Student loans do 

not have this benefit. The issue is, why risk the ability of the SBA 

to respond to future natural disasters by allowing the deferral of 

interest payment? 

3

As we move forward with relief legislation, the response from 

this Committee will not be, let’s open the federal feeding trough 

and allow just anything into the bill whatever they like. The right 

response is to tailor policies to maximize the potential of private 

citizens and markets to rebuild the economies affected by the onetwo combination punch of Katrina and Rita. 

Finally, I wanted to take this opportunity to thank the Bush Administration for rescinding the month-old rule that increased from 

$2,500 to $250,000 the amount federal employees could charge to 

government credit cards for services related to Hurricane Katrina 

relief. I raised this objection during passage of the second supplemental appropriation bill last month in a colloquy on the House 

floor with the Chairman of the House Appropriations Committee 

because of its potentially devastating consequences for small business. Few people know that contracts of between $2,500 and 

$100,000 are reserved exclusively for small businesses. With this 

new ruling, small businesses can once again have an open and 

transparent process by which to compete for government contracts 

as it relates to Hurricane Katrina and Rita relief and recovery efforts. That will be the subject possibly for another hearing on that 

aspect of the relief effort in the Gulf. I also want to thank the Administrator for recent announcement of a 12-month deferral of 

SBA-serviced business and disaster loans in the primary counties 

and parishes of the disaster area. 

My Dad is from those parts. He was born in Donaldsonville, and 

I stayed with my cousin in Baton Rouge. There was no place to 

stay. Either I stayed with him or traveled four hours to Houston. 

And, my cousin Tommy took us all over that area down there. We 

visited the Joint Command Center, where all the agencies are 

working and many of those people there are living, not only in the 

building there but they are living in tents. I was really impressed 

with the quality and efficiency of the work going on. We have a lot 

of work to do, however. 

[Chairman Manzullo’s opening statement may be found in the 

appendix.] 

Now I will recognize the ranking member of the full committee, 

the distinguished gentlelady from New York, for her opening statement. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

On August 29th, the Gulf Coast was hit with one of the worst 

natural disasters ever witnessed by our Nation. Not only were possessions lost and families separated, but the livelihood of millions 

of people and businesses were instantly shattered. 

The impact of Hurricane Katrina was unprecedented, and with 

it we were all reminded of the harsh reality, there is nothing more 

critical than ensuring that assistance is provided immediately and 

efficiently to all those in need. 

In the aftermath of Hurricane Katrina, thousands of small businesses have turned to the Small Business Administration for assistance. Looking back on the past six weeks, it has become obvious 

to me and many others that today SBA has failed the Gulf Region 

small businesses. It is appalling that as of last week, one month 

after the hurricane touched down, not one of the small businesses 

that have been promised a loan actually received one. This is unacVerDate 0ct 09 2002 18:22 Jan 18, 2006 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\HEARINGS\24847.TXT MIKE
4

ceptable, and there are simply no excuses for such an inadequate 

response. 

To compound this, small business owners are being told by SBA 

that it will take up to three months before they actually receive 

their disaster loan. Thousands of small businesses in the Gulf Region have been displaced or have lost their businesses altogether. 

These business owners have existing expenses to cover, employee 

salaries to take care of, and rent to pay. Clearly, they cannot afford 

three months to receive assistance. Three months represents a critical period for these small businesses. It is the difference between 

recovering and rebuilding, and having to shut down their businesses. 

In addition, many entrepreneurs are simply discouraged from 

even applying. Small businesses are overwhelmed by the paperwork requirements and extremely time- consuming application 

process. Many of these individuals simply do not have the time or 

resources to weed through the process. 

The last thing entrepreneurs in the Gulf Coast need is to have 

to fight through an agency charged with being its number one 

source of assistance. SBA shouldn’t be creating headaches for these 

small businesses, they should be curing them. 

The sad truth is that this is not the first time we have heard 

complaints about SBA’s response to disaster. After 9/11 a number 

of small businesses in the New York City area never received a disaster loan, then last year we heard more complaints about the hurricanes touched down in Florida. What is happening here today is 

just plain wrong. With the record- breaking demand SBA is facing, 

it is clear the agency lacks the resources to meet the needs of the 

Gulf Region’s entrepreneurs. 

I can tell you what is going on here. We are seeing the effects 

of an agency whose budget has been cut in half over the past five 

years, and it is now crippling under a demand they cannot simply 

handle. 

The rank and file employees who are committed as any in the 

Federal Government cannot accomplish the agency’s mission without the tools to do so, and that is what is happening here. 

I want to thank the SBA employees who are working in such 

challenging conditions. While we evaluate ways to remedy SBA’s 

mishaps, we also need to look at the rippling effects Katrina will 

have on the small business and lending communities for years to 

come. Over $2 billion of SBA loan portfolio is in the Gulf Coast Region today. Current estimates have placed long defaults as high as 

$500 million. To make sure this does not occur, steps must be 

taken now to avoid the looming prices, so we aren’t left scrambling 

once again. 

In order to move forward and avoid situations such as this, something needs to be done. The bottom line here is, something has 

gone terribly wrong in SBA’s response, whether it is an issue of not 

having adequate staff, resources, or a fully- functional loan processing system, there are far too many small businesses through the 

Gulf Region still awaiting for assistance. This is simply unacceptable, and it is time they agency recognizes this. No more everything is fine talk, that is not going to work here. This agency cannot walk away today without laying out a plan of action and steps 

5

to provide immediate relief to the thousands of entrepreneurs who 

are relying so heavily on SBA right now. Entrepreneurs in the Gulf 

Coast need SBA’s assistance today, not tomorrow. 

If we want these businesses to make a full recovery, and to ensure small businesses can depend on SBA in future disasters, then 

these issues need to be addressed now. 

Thank you, Mr. Chairman. 

[Ranking Member Velazquez’s opening statement may be found 

in the appendix.] 

Mr. MANZULLO. Here’s the procedure we are going to use. We are 

going to start with Mr. Barreto, and then when we finish Mr. 

Barreto said that he would stick around as long as he can to be 

able to hear the testimony of the other witnesses. 

We have a member here from Louisiana that wanted to, your last 

name is about as bad as mine, Charlie, if you would take just a 

very brief amount of time, brief, one minute to introduce your witness who will be on the next panel. 

Mr. MELANCON. My witness will be in the next panel, Guy T. 

Williams, and I came in earlier and found out that another friend 

of mine, Ralph Brennan is in here. Both these folks are from New 

Orleans, but that entire metropolitan area has been totally devastated, as you are aware. I had hoped to come in and introduce 

Mr. Williams and, Mr. Chairman, I appreciate that opportunity. 

Mr. Williams is the Chairman and Chief Executive Officer of 

Gulf Coast Bank & Trust. He was telling me just a few minutes 

ago that they have placed a portable building to try and get a 

branch back up in St. Bernard Parish, which is one of my parishes 

that has been totally devastated. There is not a house or a business— 

Mr. MANZULLO. Charlie, you are over a minute. 

Mr. MELANCON. Over a minute, I’m sorry, sir. 

Mr. MANZULLO. We’ve got votes coming up in just a few minutes. 

Mr. MELANCON. Let me just introduce you to my friends, Guy 

Williams and Ralph Brennan, from Louisiana. 

Mr. MANZULLO. Do you guys want to stand up. There you are, 

thank you for coming from Louisiana. 

Thank you, Charlie. 

Administrator Barreto. 

STATEMENT OF THE HONORABLE HECTOR V. BARRETO, U.S. 

SMALL BUSINESS ADMINISTRATION 

Mr. BARRETO. Good morning, Chairman Manzullo, Ranking 

Member Velazquez, and distinguished Members of this Committee. 

Thank you for inviting me to discuss the Small Business Administration’s Office of Disaster Assistance efforts to provide relief to the 

victims of Hurricane Katrina. 

Herb Mitchell, the Associate Administrator for Disaster Assistance, is with me. Herb is a career employee with over a decade of 

experience in disaster assistance. Herb and I were recently in Mississippi and Alabama, and previously in Louisiana and Texas, we 

learned first hand the extent of the destruction caused by the hurricane. 

In Gulfport, I was shocked to see a city that had literally been 

flattened. We met with the citizens, homeowners and the small 

6

business owners who were affected, and with our SBA employees 

on the ground, and I can tell you I’ve never been more proud of the 

work we do at the SBA. 

Mr. Chairman, I know you want to discuss efforts to rebuild the 

Gulf Region, and how SBA can rebuild the economy of the affected 

areas. However, would like to first talk about the SBA’s work since 

Hurricane Katrina hit. 

Mr. Chairman, you met our Disaster Recovery Staff led by Al 

Judd in Baton Rouge. They are just one of 33 Disaster Recovery 

Centers in Louisiana. We now have nearly 600 staff on site in the 

affected areas. They have done an excellent job, and I am committed to offer them all of the support they need to carry out the 

SBA’s disaster assistance mission. 

As the primary federal disaster assistance loan program for longrange recovery for private sector, non- agricultural disaster victims, 

SBA’s disaster program offers direct loans with eligibility based on 

financial criteria. Currently, the interest rate for loans for homeowners without credit available elsewhere is 2.687 percent, and the 

rate for homeowners with credit available elsewhere is 5.375 percent. The vast majority, over 96 percent, of our disaster home 

loans, are made at the lower interest rate. For business the rates 

are 4 percent and 6.557 percent, respectively. 

SBA disaster loans are not just for small businesses. Most loans 

go to homeowners, and Katrina and Rita home loan applications 

currently out number business applications 8:1. SBA has two kinds 

of business disaster loans, physical disaster loans for uninsured 

losses up to $1.5 million, with funds to repair or replace business 

property to pre-disaster conditions. 

Economic injury disaster loans provide up to $1.5 million in 

working capital for loans for small businesses that suffer economic 

injury as a direct result of a disaster, regardless of whether the 

property was damaged. 

These are loans to help small businesses pay ordinary operating 

expenses. The bottom line is, the SBA’s disaster loans help rebuild 

communities. SBA doesn’t just help the small businesses, but their 

friends, and neighbors, and their customers. Our disaster loans 

make recovery affordable through three factors, low interest rates, 

longer terms, up to 30 years, and refinancing under certain circumstances. SBA disaster loans are a critical source of economic 

stimulation in disaster- ravished communities and help spur employment and stabilize tax bases by protecting jobs. 

SBA responded immediately to the President’s disaster declaration for Hurricane Katrina, and continues to expand and increase 

assets to ensure that our delivery of disaster assistance goes 

smoothly. 

I would like to address the media accounts of computer problems 

and processing slow downs in the Office of Disaster Assistance. 

Nothing could be further from the truth. The old system, the automated loan control system, was cumbersome. It was unreliable. It 

was outdated. The ALCS was not a loan processing system, but it 

was a tracking system to interface with our mainframe, and we 

had two other unconnected and outdated systems for underwriting 

and legal documentation generation as well. 

7

Last year, the ALCS broke down during the Florida hurricanes, 

and it took nearly a week to be repaired because nobody carries 

parts for a system that old. Faced with the possibility of future failures, SBA moved forward to build the disaster credit management 

system, or DCMS. The DCMS is a totally integrated, web-enabled 

system, that performs all of the necessary functions on one platform with the latest technology. It also improves SBA’s access to 

external data sources like credit reports, and existing federal debt, 

tax information, and benefits data. This system has been in use 

since November of 2004, and allows SBA to process loans electronically in a paperless environment. 

As I said, SBA started moving even before Katrina hit. We had 

880 staff when the President made his declaration, and we now 

have over 2,800. We expect to hire nearly 2,000 more. 

Recently, I visited our processing center in Fort Worth, Texas, 

where we have expanded the facility by 40,000 square feet and 

added phone and computer connections to increase our capacity to 

process applications, and we will acquire the floor above us in Fort 

Worth to expand further if needed. 

To date, SBA has received a record number of referrals from 

FEMA, over 1.4 million referrals, more than the four 2004 hurricanes combined. Our processing center in Fort Worth, Texas is 

working 22 hours a day, and surge capacity is in place in the backup processing location in Sacramento, California. Both locations 

have sufficient numbers of desktop computers to process and disburse loans. They have received 61,000 applications, mostly in the 

past two weeks, yet they are receiving and inputting those loans 

at over 3,000 a day. 

The temporary problems in the affected area were not related to 

the system, rather staff often couldn’t reach homes or businesses, 

or contact the applicant. Lack of physical access slowed our folks 

in the beginning, and they were only completing 250 verifications 

daily. That has doubled and we reach over 2,000 verifications a day 

now. We have already completed 29 percent of the assigned 

verifications, and that number will climb. 

In order to further expedite verification, SBA is working to obtain some satellite imaging data and other public records that can 

help us verify damage and ownership without going to the site. Unfortunately, the person on the ground is still usually the best tool 

for verification. 

As I said, ODA is staffed up to meet the demands of this disaster 

and continues to hire. By design, ODA staffs up to meet the needs 

of disaster victims when disaster strikes. The staffing up is transparent to disaster victims and saves taxpayers hundreds of thousands of dollars by keeping the staff low in times where little disaster activity is occurring. Our SBA ODA employees are now in 

over 50 disaster recovery centers, and more are opening daily. At 

each of these DRCs SBA provides Katrina victims with one-on-one 

assistance, helping to fill out applications and answering questions. 

They are also making follow-up telephone calls to victims who have 

not returned their applications. 

I would also like to discuss some of the other steps SBA is taking 

outside of our normal programmatic efforts. SBA has assigned four 

procurement center representatives, or PCRs, to Katrina-related 

8

contracting. Our Office of Government Contracting is meeting with 

small and disadvantaged business utilization officers from all 

major agencies to help focus on small business opportunities. SBA 

is working with the General Services Administration to establish 

sourcing lists for small businesses, and help small businesses enter 

the central contractor registration database of small businesses. It’s 

available for contracting in the Gulf Region. Small business can 

call now, 1-800-FED-INFO to register and learn about opportunities. A customer service representative from GSA will field the calls 

and direct each caller to the nearest SBA district office. The SBA 

has designated personnel to respond to these inquiries and make 

referrals to SBA’s PCRs. 

I’m also happy to announce that Judith Roussel, our District Director from Illinois, who has considerable contracting experience, 

has been detailed to coordinate this effort, and the early data on 

small business utilization, the recovery efforts, is encouraging. We 

are well exceeding our small business prime contracting goal of 23 

percent. While the Administration’s priority is always working to 

provide needed emergency services as quickly as possible, SBA is 

committed to making sure that our small business customers receive fair opportunities to help in the rescue, relief and reconstruction effort. 

Let me just offer two examples of the results. The Army Corps 

of Engineers recently issued 100 percent small business set aside 

for quality assurance services, a multiple award, firm, fixed-price 

contract. They’ve also issued an 8[a] competitive contract action for 

multiple award roofing contracts, three contract awards anticipated 

at not to exceed $50 million each. 

I have signed an administrative notice for all SBA service borrowers in the affected areas, giving them up to 12 month deferment 

of payment. In the same notice, I encouraged our lending partners 

to contact SBA and work with us to see what type of solutions we 

can find to assist them in working with their small business borrowers. 

Our small business development center partners have also come 

forward to assist with counseling and business development assistance for small businesses damaged by Katrina. We are working 

with them to enable them to provide services from neighboring 

states and across the country. To that end, I have authorized 

SBDCs to operate outside their state to help in the affected areas. 

SBA also recently announced a new agreement with the Louisiana SBDC and efforts with the Mississippi SBDC to provide additional disaster business counseling. 

Mr. Chairman, I would now like to discuss some of the proposals 

the Administration has put forth. In the area that the President 

has designated Gulf Opportunity Zones, or GO Zones, SBA will 

have the following role. We will increase the maximum size of SBA 

business-related disaster loans from $1.5 million to $10 million. 

Raising this cap on loan size should help business activity recover 

more quickly by facilitating firms access to low interest loans to 

cover physical damage and economic injury. 

Increased disaster mitigation loans, SBA can currently increase 

a disaster loan by up to 20 percent, so the borrower can invest in 

disaster mitigation technology, such as storm shutters. For examVerDate 0ct 09 2002 18:22 Jan 18, 2006 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\HEARINGS\24847.TXT MIKE
9

ple, a business with $100,000 of damage may have $80,000 covered 

by insurance, and a $20,000 SBA disaster loan. Typically, the 

SBA’s mitigation loan would be 20 percent of the $20,000. The Administration’s proposal would raise eligibility to 20 percent of the 

total $100,000 damage, in this case increasing the amount eligible 

for a mitigation loan five fold. 

Increase the maximum size of surety bonds from $2 million to $5 

million. Small business often must secure bid and performance 

bonds in order to win contracts. These bonds assure the contractor’s customers, including those in the public and private sectors, 

that the contractor has the financial capacity to perform the requisite work. The larger bonding limit would assist small businesses 

in the disaster areas secure contracts, especially those related to 

reconstruction. 

Provide 7[a] and 504 loan borrowers with the option for deferring 

their principal and interest payments for a 12-month period. In 

order to help small businesses in the disaster area to rebuild their 

enterprises and cash flow, the Administration supports providing 

borrowers with options to defer principal and interest payments on 

existing 7[a] and 504 loans for up to 12 months. Under certain circumstances, participating lenders and certified development companies can make deferral available. Where deferral is not available 

alternative means of providing temporary relief to the borrower 

may be needed and could include an economic injury disaster loan 

for the working capital needs of the small business. 

Through these measures, borrowers could better regain their financial foundation. SBA is also deferring payments on certain 

agency service business loans in the disaster area, and sent a notice asking our lending partners where possible to do the same for 

SBA business loans that they service. 

Higher specific GO Zone and 7[a] and 504 loan levels than Fiscal 

Year 2006. The current program authorizes for Fiscal Year 2006 

SBA’s nationwide 7[a] loan volume to $17 billion, and 504 volume 

up to $7.5 billion. The Administration proposes higher loan levels 

specifically for the GO Zone area during Fiscal Year 2006, ensuring 

that lenders will be able to make small business loans in the area. 

GO Zone area levels will be $10 billion for 7[a] loans and $5 billion 

for 504 loans, in addition to the levels already authorized for the 

regular programs. 

Once Hurricane Katrina hit the Gulf Coast, SBA’s ODA immediately began its outreach, as we do in all disasters. ODA was in 

contact with our regional offices, with our SBDCs and local community-based organizations. Our efforts have been hampered by the 

destruction, but I’m pleased to report that we are serving those affected by this disaster well, and have the manpower and technology 

to continue to do so. 

While SBA is continuing its traditional efforts to offer assistance 

to businesses and homeowners to rebuild, we also believe there is 

more that can be done to rebuild the economy in the Gulf Region. 

Thank you, Mr. Chairman, and Ranking Member Velazquez, for 

affording me the opportunity to speak to you today about this very 

important topic. I look forward to answering any question that you 

might have. 

10

[The Honorable Barreto’s testimony may be found in the appendix.] 

Mr. MANZULLO. Thank you. 

Mr. Taylor, if you want to take one minute and introduce your 

witness. I do not think there is going to be an opportunity for people who are not members of the Small Business Committee to ask 

questions. 

Okay, it could be some time. Okay, it’s up to you, thank you. 

Mr. Barreto, thank you. What I would suggest is, Herb Mitchell, 

do you want to have a seat next to the Administrator, and as the 

questions come, because you have a lot of in-pocket information on 

this, that if Mr. Barreto wants to have you answer the question 

just feel free to do so. 

For the record, do you want to give your name and spell the last? 

Mr. MITCHELL. Thank you, Mr. Chairman. 

My name is Herbert Mitchell, and I’m the Associate Administrator for Disaster Assistance at SBA. 

Mr. MANZULLO. Thank you. 

The first question is, we’ve been in contact with FEMA, and the 

reason that we have been told that monies have not been disbursed 

in the New Orleans area is the fact that the Army Corps of Engineers has not certified that they can build a facility that will withstand a Level 5 hurricane, and until such time as some assurances 

are made as to exactly what the Army Corps can do, that the SBA 

cannot disburse. Did you want to comment on that, Mr. Barreto? 

Mr. BARRETO. Well, you are absolutely right, Mr. Chairman. 

There are a number of issues, and often times those don’t get mentioned or covered, that we require for us to be able to distribute a 

loan. The one that you mentioned is critical, is that are those areas 

going to be rebuilt. 

One of the things that we have to have is a permit. We are not 

allowed to be able to disburse money, even after we’ve approved 

the loan, until there is a permit. 

Now, one of the things that slowed us down in the very beginning was our inability to get into some of those areas. We also have 

to go in and physically do an investigation of that area. We had a 

lot of challenges in the beginning. It’s getting better, it’s getting a 

lot better, and our investigations have gone up, but that’s also one 

of the critical requirements. 

Another requirement is that there must—if they are in a flood 

plain, they must also have flood insurance, so that’s another issue 

that sometimes precludes us from getting that money out. 

And lastly, and again, this is something that again doesn’t often 

times get mentioned, is that we can’t distribute money until the individual tells us to distribute the money. Sometimes for a whole variety of reasons we’ll approve a loan and the individual may decide 

they don’t want it right at that time. They may not want to start 

accruing interest, or they may have decided to go a different route. 

So, all of those issues play into why a loan may not be yet approved or be distributed yet. 

Mr. MANZULLO. Have loans been approved but are waiting distribution based upon the factors that you just set forth? 

Mr. BARRETO. Absolutely. 

11

Mr. MANZULLO. Do you have the numbers of those? Mr. Mitchell, 

you might have those. 

Mr. MITCHELL. As of last night, we have approved 586 loans for 

$36 million, only 23 of those have actually had disbursements for 

$207,000, that’s correct. 

Mr. MANZULLO. In terms of the personnel required to handle this 

number of applications, do you want to share that information with 

us? 

Mr. BARRETO. Absolutely. As we mentioned already, you know, 

we’ve been staffing up continuously. I mean, we are averaging at 

one point, and Herb can comment on this, 200 additional hires a 

day. 

As I mentioned in my testimony, you know, the SBA has a cadre 

of employees. I believe that right when the disaster hit we had 800 

permanent cadre employees. Those are the folks that do— 

Mr. MANZULLO. Just for disaster relief. 

Mr. BARRETO. Right, just for disaster relief. 

But, since that time we’ve brought on a couple of thousand more, 

and we are expecting to probably have to bring on another couple 

thousand. 

Now, one of the things is that we are fortunate, is that we have 

a network that we call on. In other words, we have people that are 

already trained that have worked with us on disasters before, and 

so we call them up, it’s like calling up the National Guard, but this 

is the disaster guard, if you will, and they come on board with us 

and they are able to hit the ground running. 

On a disaster like this, and especially with the volume that we 

are talking about, we also need some people with specialization. We 

are going to need some additional attorneys. We are going to need 

some additional people that can do the loan processing, do the investigation, folks that have customer service expertise, and all of 

those people are being brought on board right now. 

I can have Herb talk specifically about the numbers that we have 

right now and what our process has been about ramping up. 

Mr. MITCHELL. As of this morning, we are at 2,900, and as you 

already mentioned we started at 880 before the disaster hit. We 

are still interviewing. We are estimating that we’re probably going 

to peak at some point about 4,000, and, obviously, a lot of the attorneys and paralegals will come on as more loans move into the 

legal process. 

But, we are also hiring more inspectors in the field, as we are 

able to get in, get access to additional areas. Hector has already 

mentioned, our productivity in that has gone up tremendously in 

the last week or so, simply because we are able to get access, we’ve 

moved people to the field. 

And, the other benefit that we are seeing right now, as more of, 

I guess, construction employees, who were previously unemployed, 

are now available to assist us. I think on this past week we put 

out an ad in Louisiana. We had 300 applicants, Louisiana construction workers, and we are starting to interview and hire those individuals. I think we hired 15 the first day, and we will continue to 

do that. The benefit to us is, obviously, we don’t have the travel 

expenses, and we have people that, not only know construction, but 

12

they know the local area as well, to help us in doing the inspections. 

Mr. MANZULLO. Okay. 

Ms. Velazquez? 

Ms. VELAZQUEZ. Mr. Chairman, I will defer to the Members on 

my democratic side, and then at the end I will ask my questions. 

Mr. MANZULLO. Who will be the first Democrat out, oh, Mr. 

Grijalva? 

Mr. GRIJALVA. Thank you, Mr. Chairman. 

I just have some general questions, and thank you, Mr. Barreto, 

for being here. 

I think the Chairman said that maybe one of the objectives of the 

hearing was not to open the federal coffers to such a point that it 

becomes a feeding frenzy, paraphrasing. I might suggest as well, 

though, that as we’ve responded to this devastation, you know, 

there’s been a suspension of Davis-Bacon, there’s been a suspension 

of affirmative action in some areas, I think that affects women and 

minority owned businesses in terms of accessing contracts. We’ve 

had a series of no-bid contracts to connected corporations, and I 

would suggest that maybe denying reconstruction contracts to 

small businesses at the initial outset and to local workers who desperately need the job should be part and parcel of how we reconstruct. And, I don’t think it’s a question of coffers, it’s a question 

of process and fairness, as much as anything else. 

My question, though, is, let me just specify in one area, if I may, 

Mr. Barreto. Given the needs of the low-income communities in 

these devastated areas, the SBA, I believe, could truly make a difference, not only in the short term relief, but in the long-term reconstruction, by targeting programs to the Gulf Region to those 

specific communities. 

And, my question, is the SBA considering any proposals to expand the use of programs developed for low-income communities, 

principally, the PRIME program and the New Markets Venture 

Capital program, are those being thought about as expanding into 

a targeted aspect? 

Mr. BARRETO. We are doing a number of things, Congressman 

Grijalva. First of all, you are absolutely right, you know, small 

business has to be a part of this reconstruction, and there’s nothing 

that’s going on right now at the federal level that is preventing 

small business people, minority small business people, from having 

access to those contracts. 

And, one of the things, whenever there’s a disaster, and this has 

been our experience, one of our big responsibilities is to make sure 

that we are communicating with all of the individuals in that area 

on how to access our programs, how to access our services, also 

working with the local communities there to make sure that we are 

getting that information out. 

Obviously, you know, for a lot of folks they are assessing what 

their needs are going to be. The disaster loans will be one component of that. One of the things that this offers us is an opportunity 

to also introduce them to all of the other things that the SBA does. 

You’ve mentioned some of those things in our regular programs, 

our regular lending programs, our regular training programs, our 

13

regular contracting programs. And so, we are also offering that as 

well. 

Just yesterday, we had a meeting in New Orleans with regards 

to communicating with the business community what all the tools 

that are available there, and we are setting up a business center 

there, specifically, to interface with the small business community, 

and especially the minority small business community, on how they 

can access, not only tools, because tools are very important, but opportunities. A lot of small businesses are saying to us, look, all the 

tools are great, but if I don’t get some business for my business 

pretty soon I’m not going to be able to take advantage of anything. 

One of the things that we are also doing, Congressman Grijalva, 

is that we’ve had a very successful program at the SBA for the last 

couple years called Business Match-Making, and we are working 

with the affected states right now to bring that program to those 

states and match up those small businesses directly with the buyers, the federal buyers. 

Mr. GRIJALVA. Specifically, the PRIME program, is that being expanded? Is there stuff that’s being done with that PRIME program 

in these devastated areas? 

Mr. BARRETO. Yes, we have not looked at that as to expand the 

PRIME program or any of the other programs. Our first, you know, 

response that we’ve had is to make sure that we are getting the 

information out on the disaster loans and disaster assistance. 

That’s key, and then at the same time— 

Mr. GRIJALVA. Those two programs in the long-term reconstruction and stability, stabilization of the area and the business aspect, 

those programs will be looked at for expansion? 

Mr. BARRETO. We’ll look at all of our programs, because I want 

to make sure that the small businesses there have access to the 

full complement of SBA services and programs, absolutely. 

Mr. GRIJALVA. Let me just, one other point, in your Senate testimony of September 22nd you labeled the press accounts about the 

computer problems at ODA as ‘‘misguided.’’ And, as I reviewed 

your testimony for today, you dropped that adjective, so that’s no 

longer misguided? 

Mr. BARRETO. Well, there’s a lot of adjectives that you could use 

with regards to the press reports. The thing that happens often 

times with a lot of the press reports that are coming out is it’s incomplete information. 

You know, we don’t have a problem with our system, in fact, our 

system is a huge improvement above what we had before, and I 

mentioned that in my testimony. We think this is going to help us 

to do a lot more and do it quicker, and more efficiently, and in a 

much more qualified way than we’ve ever been able to do it before. 

Mr. GRIJALVA. Last question. 

Mr. MANZULLO. Well, time is out, we’ll get back. 

Mr. GRIJALVA. Thank you. 

Mr. MANZULLO. Mr. Bartlett? 

Mr. BARTLETT. Mr. Chairman, I’d like to yield my time to a gentleman who not only had his district devastated, he lost his house. 

I think Mr. Taylor recovered two wrenches and a pipe cutter. I’d 

like to yield my time to Mr. Taylor. 

Mr. MANZULLO. We can do that. 

14

Mr. Taylor? 

Mr. TAYLOR. Thank you, Mr. Bartlett, and thank you, Mr. Chairman. 

Mr. Barreto, what I’m really troubled by is, I hear a lot of talk 

about what you are doing for small business, but it’s all the crumbs 

that are falling off the table. The big contract right now is disaster 

clean-up, that was given on a no-bid contract for up to $500 million 

to out-of- state firms. Where were you when this took place? I 

mean, as an advocate for small business, I would think that you 

would have been in the room at the table saying, wait a second, 

this is a devastated area, 16,000 casino workers out of work in my 

district, the shrimpers have lost their boats, the only thing they are 

going to catch in a trawl now might be a Porsche that’s been under 

water for a month. I mean, we can go down the list, timber fields 

are knocked down, cattle fences, and we just go down the list of everything that’s happened. 

So, the big jobs that are available right now is disaster clean-up, 

and that’s going on a no-bid contract to an out-of-state firm, where 

was SBA, looking out for the little folks who live there? 

Mr. BARRETO. Well, absolutely, Congressman, that is our responsibility. I’m not aware of every procurement in every federal agency 

often times until after it takes place. But, one of the things that’s 

very important to remember— 

Mr. TAYLOR. Where was SBA when this decision was made? 

Were you included at all in that decision-making process? 

Mr. BARRETO. Which decision, Congressman? 

Mr. TAYLOR. The decision to let the disaster clean-up, a $500 million, again, you know, everyone else is looking for just crumbs off 

the table, I read your programs, crumbs that fell off the table, the 

big contract that’s going on right now in south Mississippi is disaster clean-up. There was not a single word in there about one little carve out to help small business. 

Mr. BARRETO. Congressman, last year the Federal Government bought $70 billion from small business. 

Mr. TAYLOR. I’m talking about right now. 

Mr. BARRETO. I understand. 

Mr. TAYLOR. This is about the hurricane. 

Mr. MANZULLO. Mr. Taylor, let the witness answer the question. 

Mr. TAYLOR. I’m sorry. 

Mr. BARRETO. $70 billion was almost 23 percent of everything 

the Federal Government bought, that’s not crumbs, that’s actually 

a significant increase. A few years ago we were doing $50 billion. 

And, the good news is that those federal contracts are going to 

every community, small disadvantaged businesses, they are going 

to all kinds of minority businesses, women businesses, and we will 

make sure that small businesses there get contracts. 

Mr. TAYLOR. When? 

Mr. BARRETO. In the very beginning, what was happening is that 

there was an urgent need to respond immediately. We were trying 

to save lives, we were trying to get people in there, and that’s what 

happened. But, there’s going to be a tremendous amount of contracting activity. 

In fact, the numbers that we have right now is that a contract 

that’s going to small business and minority business is far exceedVerDate 0ct 09 2002 18:22 Jan 18, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\HEARINGS\24847.TXT MIKE
15

ing the 23 percent federal percentage, far exceeding as of this moment. 

Mr. TAYLOR. I think your numbers are way off, and I think you 

need to double check them. 

Mr. BARRETO. We have double checked them, and they are far 

exceeding 23 percent of all the contracts that are going in that area 

are going to small businesses, many of those to minority businesses. 

Mr. TAYLOR. Are they going from the people from the devastated 

areas? 

Mr. BARRETO. A number of those contracts are going to them. I 

don’t have the percentage. 

Mr. TAYLOR. I can assure you that 23 percent certainly isn’t 

going locally. 

Mr. BARRETO. It’s more than 23 percent. 

Mr. TAYLOR. It’s not going local, and again, if I may, that’s water 

under the bridge, let’s start today. Are you, as an advocate for 

small business, going to request that FEMA go ahead and recompete those contracts? 

Mr. BARRETO. They did that yesterday, Congressman. FEMA rescinded, was going back out to bid on those contracts yesterday. 

Mr. TAYLOR. And, did you, as the advocate for small business, request that it be done in an expedited manner, because 30 days 

from now a heck of a lot of that work is already going to be gone. 

Mr. BARRETO. Right. 

Mr. TAYLOR. And then, it doesn’t implement for, say, another 30 

days, so you are going 90 days from the day of the storm, and a 

heck of lot of work has been accomplished by out of state firms. 

Mr. BARRETO. I agree. 

Mr. TAYLOR. And, they’ve missed all that opportunity. 

So, have you gone to bat to try to expedite that? 

Mr. BARRETO. We work very closely with FEMA, and the Acting 

FEMA Director has said that he’s going to expedite those rebiddings. But, that is another one of those issues where, you know, 

you have to balance being able to respond quickly, especially at the 

front end of a disaster, and then going back out to a competition 

on these things. That’s going to take some time. 

Mr. TAYLOR. Okay, again, for the future, there’s really two 

phases to a hurricane. I can understand the first guy who comes 

in asks for—on electricity, brings his own fuel, feed, and house his 

own people, and that goes on for about three weeks. After three 

weeks, there is electricity available, there’s fuel that can be purchased locally, there are people that can be contracted locally. For 

the future, I would really encourage you, because there’s going to 

be another hurricane, or tornado, or flood, whatever, I would really 

encourage you to work with FEMA to do it in two separate phases, 

the initial phase where the dates are and then the follow on, so 

that we don’t make this mistake again. 

Mr. MANZULLO. Thank you. 

Ms. Moore? 

Ms. MOORE. Thank you so much, Mr. Chair, and I just want to 

thank the witness for coming here and being willing to be a part 

of this panel. 

16

My question really is, I guess, you know, I guess I just want to 

say that I know you didn’t cause the storm, Katrina. 

Mr. BARRETO. Thank you, Congresswoman. 

Ms. MOORE. That hasn’t been said often enough, but I do think 

that natural disasters like this really give us an opportunity to step 

back and look at what the quote, unquote, to borrow your words, 

‘‘normal procurement process’’ is like. And, my concern, as has been 

stated by other members of the Committee, is that this storm has 

really pulled off the fig leaf, as it were, for how we ordinarily do 

procurement, and small business really doesn’t fare well. 

The L.A. Times today reported, and maybe I can clear up this 23 percent, people keep being stuck on 23, 23 checks totally $207,800 

have been issued so far to small businesses. You know, I voted for 

$62 billion, and $207,800, 23 checks, have been cut. And that’s, you 

know, when I talk to small businesses in my district they say that 

that’s kind of business as usual, that the big companies come in, 

there’s a press release, you know, saying we are going to do it, and 

so I guess I want you to respond to that. 

And also, I want to talk about what happens normally. Tell me 

how—I know people have talked about Davis-Bacon, affirmative action, rules being bypassed, but how have the living within a certain 

distance of the work, how have those rules been implemented during this catastrophe? And, in terms of the 23 firms that have got the $207,800, what 

is the plan for? 

Mr. BARRETO. Sure, thank you for that question. 

First of all, let me clarify something. There’s actually been close to 600 loans approved for $36 million. 

Ms. MOORE. Twenty-three checks have been cut. 

Mr. BARRETO. Exactly, 23 checks have been cut, for the variety 

of reasons that we’ve already talked about, but, and by the way, 

not all those 23 were businesses, by the way. Right now what we 

are seeing is, homeowners are outnumbering the small businesses 

8:1 in terms of, you know, the request for loans. And, that’s just 

normal, there’s a lot more homeowners than there is businesses. 

And then, you know, I’m going to let Herb talk a little bit about 

this, and I want to also—we brought some charts, because I want 

to actually illustrate what it is that we are dealing with. You know, 

70 percent of all of the applications that we’ve received we’ve gotten them in the last couple of weeks. You know, there’s this sense 

of that we have thousands, and thousands, and thousands of applications in a pipeline someplace that are not getting out, that’s not 

really what’s happening. 

And then, I’ll let Herb talk a little bit about, you know, sometimes we talk about what we do in a normal disaster. I don’t think 

that there is any kind of a normal disaster. They are all different, 

they all require a different kind of a response and a different kind 

of an effectiveness. There’s no doubt that this one is very different, 

unprecedented in the scope that we are dealing with right now. 

And, you know, Herb has a tremendous amount of experience 

over the last ten years dealing with every disaster that the SBA 

has ever had to deal with, so I’d like him to maybe walk through 

a couple of these charts, and I think that will illustrate a little bit 

about how the flow is going on these loans. 

17

Ms. MOORE. And, be very specific, because I think that, you 

know, this hearing is about the Gulf Region, but I guess I’m trying 

to get my arms around how you operate ordinarily. 

Mr. BARRETO. Sure. 

Ms. MOORE. You know, and how we’ve departed from those practices, like, for example, if Brown & Root, one of the Haliburton 

companies, I mean, does it meet the mile requirement? I do want 

to understand that better, how small businesses do or do not qualify for loans, if they don’t live in proximity to the SBA regional offices. 

Mr. BARRETO. Okay, and Herb can come in on that too, but 

please understand, there is no—I mean, if that small business is 

in a declared disaster area, and remember, we are talking about 

a declared disaster area the size that we’ve never seen before, the 

size of a country, anybody inside that area, it doesn’t matter where 

in that area that they live, could qualify for a small business loan 

or a homeowner’s loan, or a renter’s, you know, to replace personal 

property. So, there’s not an issue there, if they are inside the declared disaster area they are going to be able to apply for these 

loans. 

Ms. MOORE. Okay, just very quickly, before my time runs out. 

Mr. MANZULLO. Mr. Gohmert. 

Ms. MOORE. Before my time runs out. 

Mr. MANZULLO. It’s run out. 

Ms. MOORE. Oh, Mr. Chairman. 

Mr. MANZULLO. I can’t stop the clock. 

Mr. GOHMERT. Thank you, Mr. Chairman. 

Just to go quickly to some questions I had. One of the recommendations is to increase the maximum size of surety bonds 

from $2 million to $10 million, and I notice the President’s recommendation was to $5 million. Has there been any data as to how 

many businesses it would affect to go from $2 million, to $5 million, to $10 million? 

Mr. BARRETO. Well, we’ve looked at that. I don’t have the exact 

percentage in front of me. What we found is, is that most of the 

small businesses that we are dealing with would be under that $5 

million surety bond area. And so, you know, that’s the reason that 

we determined $5 million was probably the best for us, because it’s 

going to include most of the small businesses. 

Mr. GOHMERT. So, you don’t recommend the $10 million? 

Mr. BARRETO. Not at this point. I don’t believe that it’s going to 

affect that many of the small businesses in that area. I mean, we 

are always happy to continue taking a look at it, and if there’s evidence that a number of small businesses need that $10 million, 

then we definitely want to take a look at that. 

Mr. GOHMERT. Well, with regard to this maximum size of the 

loans themselves, $1.5 million to $10 million is a possibility, what 

is your data on that? 

Mr. BARRETO. Well, you know, we’ve done this before, we did this 

in 9/11. We realized there were a lot of small businesses that were 

going to need more, that were going to need more, and especially 

in a disaster like this where there’s been such devastation, where 

it’s going to take some time for some of these small businesses to 

come back, we want to be able to offer them as much of that loan 

18

as they can get. So, $10 million has been a number that we’ve used 

before on these kinds of things. 

Mr. GOHMERT. There’s a potential recommendation to defer repayments owed to the SBA in the 504 loan program, what is the 

recommendation on how long to defer payments? 

Mr. BARRETO. Right now, we are looking at a year, we are looking to defer those payments and that interest for a year. 

Mr. GOHMERT. Okay. 

You mentioned that the SBA had been ramping up and hiring, 

basically, at times 200 people a day. 

Mr. BARRETO. Right. 

Mr. GOHMERT. That’s pretty massive. 

Mr. BARRETO. Yes. 

Mr. GOHMERT. How long term are the contracts for these people 

that are being hired? 

Mr. BARRETO. Yes. Well, obviously, we are going to have people 

working with us on this disaster, and this is not unusual the way 

that we do it, for as long as we need them. So, you know, we don’t 

anticipate that, you know, they are going to be there for a month 

and then they are going to be gone, we think we are going to have 

people in the area, in these loan processing centers, for a significant amount of time. 

Herb can speak a little bit to that, in terms of what his approach 

is going to be on that. 

Mr. MITCHELL. Most of the employees are employed for up to—

temporary employment up for a year. Generally, we generally go 90 

days, and if we need to extend, but we simply just know that it’s 

going to be long term, so almost all of the temporaries are given 

at least a one-year appointment. 

Mr. GOHMERT. Well, I’m sure you understand my concern. We 

don’t want so much of this money being allocated for SBA to end 

up, even though it helps people temporarily by giving them a job, 

making the governmental entity bigger than the people they are 

trying to help, which has happened in some departments. 

Mr. MITCHELL. We understand, and they will only be kept on 

board as long as they are needed. We have, obviously, the flexibility to let them go if we don’t have the work. 

Mr. GOHMERT. You guarantee a year, there’s no month-to-month? 

Mr. MITCHELL. There is no guarantee, they have an appointment 

for up to a year. 

Mr. GOHMERT. Up to a year. 

Mr. MITCHELL. That precludes us, for example, of giving somebody a 30-day appointment and then have to go through paperwork 

for 2,000 employees to extend it. We just put them on a year appointment, and we release when we don’t have the work. 

Mr. GOHMERT. With regard to the SBA loans, these will have security, correct? 

Mr. BARRETO. Well, they are underwritten. I mean, they have to 

have collateral, and they have to be able to prove that they can 

repay the loan. Now having said that, this is not like underwriting 

a regular commercial loan, we are going to be a lot more flexible, 

and we don’t have the stringent requirements that one of our lenders would have in a normal situation. 

Herb, do you want to talk about the underwriting? 

19

Mr. MITCHELL. Our specific policy on collateral is that we take 

best available to secure the loan, which means— 

Mr. GOHMERT. My time is running out, so let me just encourage 

you to make sure you get the collateral properly secured. That’s 

been a problem some places in the country, collateral has not been 

properly secured. 

And one other issue when it comes to collateral, and I haven’t 

heard anybody mention it, but I know in east Texas where I’m 

from, after a river floods we’ve had feds come in and say to the 

land owner, that’s wetlands, you can’t do anything with that anymore, and I haven’t heard anybody say whether or not there has 

been any discussion with the entity that might come in and say, 

you know what, New Orleans is now wetlands, you are going to 

leave it alone. 

Mr. BARRETO. Well, you know, that’s a big issue, and that’s one 

of the reasons that we can’t, you know, even if we have approved 

a loan in a certain area, by the way, this isn’t particular to this 

disaster, you know, we’ve approved loans in other areas and sometimes it takes a while before that money can be disbursed, because 

the person doesn’t have a permit to be able to rebuild there. So, 

we will not release any monies until those permits are in place. 

Mr. MANZULLO. Ms. Bean? 

Mr. GOHMERT. Thank you. 

Ms. BEAN. Thank you, Mr. Chairman, Ranking Member Velazquez, thank you, Mr. Barreto for being here today. 

I’d like to go back to the contracts that are being awarded. 

Mr. BARRETO. Sure. 

Ms. BEAN. You mentioned that the clean-up contract is going to 

be rebid. How many local businesses, small businesses, have you 

identified and already approved, and have you cut checks for, so 

that they are prepared to participate in this rebid process? Many 

of them you mentioned a match-making program that is going to 

look at their skill sets and match it up with where there’s opportunities. 

Mr. BARRETO. Right. 

Ms. BEAN. But, many of them have been operationally devastated, even though they have the skill sets and the knowledge 

base, and they know the area, to do some of the clean- up or reconstruction. So, how many have you identified? What are we talking 

in terms of dollars, given that billions of dollars have been awarded 

even previous to this contract already, that have been done on a 

no-bid basis, exclusively cutting out the potential for the local businesses to participate? 

Mr. BARRETO. You know, a lot of these contracts are coming out 

of FEMA and GSA, and so they are tracking these numbers, and 

I don’t know that they have reported specific numbers in terms of 

how many local small businesses and what the contracts have got. 

We’ve gotten some preliminary data as to what the percentage of 

the contracts that they’ve let, and how much of that has gone to 

small businesses, how much of that has gone to minority businesses, and we will work with them and we’ll make sure that we 

have all available data on that. 

And, with regards to business match-making, some of these businesses are going to be in transition, and some of them may need 

20

to partner with another company, or some of them we’ll help them 

transition their business. So, business match-making is more than 

just, you know, matching somebody up with somebody for a contract that day. Often times what’s happening here is, you are creating linkages, you are creating relationships that will lead to contracts in the months to come. 

With regards to the loans, as we’ve said before, you know, the 

majority of the loans that we are dealing with right now, the overwhelming majority of the loans are not coming from small businesses, they are coming from homeowners, people who have had 

physical damage to their home, or may have lost some personal 

property. 

Herb, I don’t know if you want to comment on what you are seeing with regards to the small business activity on the loans that 

we’ve already approved. 

Mr. MITCHELL. Well, very few of them at this point have actually 

been disbursed. I mean, the challenge here, and what we expect 

within the next three to five days, is the inspections will be completed, we are getting access, we’ll get those numbers as to what 

it’s going to cost to repair or replace that property. 

But, a lot of challenges still lay ahead, even once they get a decision as to, you know, whether or not they are going to actually be 

able to get a contract or get an estimate, get the permits, get all 

of the things in place to actually rebuild. 

One of the town hall meetings that we had in the field, beyond 

just the financing, was employees. A lot of businesses are saying 

to us, look, we just don’t have the employees. We need some assistance in providing temporary housing for our employees in the area 

where we can operate, and that’s one of the challenges as well, beyond—there are a whole host of other issues as well. 

Ms. BEAN. So, what have you done from a process perspective to 

prioritize loan requests from local businesses that are part of the 

reconstruction effort, or certainly would like to be, and/or to do outreach to those who don’t even know that these resources are available to them? 

Mr. BARRETO. Well, that Business Center that we are opening up 

in New Orleans with the Mayor, that’s going to help us to do that, 

and again, what we are dealing with is really outreaching, educating, informing people. 

You know, a lot of times these small businesses, this is the first 

time they are ever going to come in contact with the SBA, and so 

we really have to do an orientation for them. 

With regards to the small businesses that are applying for loans, 

it kind of depends on what business they are in. Not all of them 

are interested in contracting with the Federal Government or local 

government, they may have a business, maybe a restaurant business for example, I know that we are going to hear from the restaurants, they are interested in getting their business back up to 

speed, getting those customers back, marketing that business, et 

cetera. 

So, you know, you are dealing with different kinds of concerns, 

depending on what that business is. 

Ms. BEAN. So, you said you are doing outreach, what are you 

doing? How are you letting the people— 

21

Mr. BARRETO. Well, a number of different ways. One of them is, 

is that we are working very closely with the economic development 

officials of their state. We’ve had several meetings, for example, 

with Michael Olivier, who is the Secretary of Economic Development for Louisiana. He’s been very helpful to us. Most recently, he 

was the Economic Development Director in the State of Mississippi, 

so he’s very familiar with those two states. We are working with 

him to get that information out. 

When I was down there in Louisiana, and in the last few weeks 

I’ve been to all of our operations, working with them, meeting with 

their business communities, making sure that information is out, 

working with the media, getting PSAs out. We’ve produced hundreds of thousands of informational brochures that illustrate all the 

things that we can do for them. So, I mean, we are getting— 

Ms. BEAN. So, you are doing radio and public service announcements? 

Mr. BARRETO. Absolutely, and working with our district employees as well, who are helping us get that information out, too. 

Ms. BEAN. Thank you, Mr. Barreto. 

Thank you, Mr. Chairman. 

Mr. MANZULLO. Thank you. 

Mr. Fortenberry? 

Mr. FORTENBERRY. Thank you, Mr. Chairman, we appreciate 

your willingness to hold this important hearing and, obviously, I’ve 

just walked in, and trying to catch up on the context of the entire 

proceeding. So, I would yield some time to my colleague, Mr. 

Gohmert, if he is interested in speaking. 

Mr. GOHMERT. Thank you. 

I am curious, what analysis has been done to the amount of flood 

insurance in the area, and how it affects businesses, and how you 

might mesh with that prospect? 

Mr. BARRETO. Well, Congressman, one of the things that is a prerequisite for us, especially if the small business is located in a flood 

plain or an area that is very susceptible, you know, that is one of 

the requirements before we are able even to distribute. 

Mr. GOHMERT. I would hope so. 

Mr. BARRETO. Yes, it is, and, Herb, do you want to mention what 

we are seeing right now with regards to the flood insurance in 

terms of, you know, the ability to get it? 

Mr. MITCHELL. Yes. I don’t think there’s any challenge in terms 

of the availability of flood insurance, and, obviously, there are some 

issues around some of the mapping and whether or not some of 

those areas should have been mapped accordingly. But, you know, 

that’s just a product of the maps not being updated. 

But, there are two elements to flood insurance. One is, if you 

were in a flood plain, and you were required to obtain flood insurance and you did not, you would not be eligible for any federal assistance, and that’s SBA across the board. I mean, that’s statutory. 

If we make you a loan as a result of a flood, then you must purchase the flood insurance and maintain that insurance. 

Mr. GOHMERT. So, for those people that have insurance, shouldn’t 

that take care of rebuilding their business? 

Mr. MITCHELL. Our experience is that what people will find is 

that they will be under insured. I mean, flood insurance and hazVerDate 0ct 09 2002 18:22 Jan 18, 2006 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 G:\HEARINGS\24847.TXT MIKE
22

ard insurance, for that matter, cover specific things, and if you 

don’t get additional riders you may not have full coverage. 

And so, we are covering that uninsured portion of the insurance, 

whether it’s flood insurance or hazard insurance. 

But, I also want to emphasize to you— 

Mr. GOHMERT. So, you are saying that even though you require 

flood insurance you don’t require riders that would actually keep 

them insured in the event of a flood. 

Mr. MITCHELL. Well, not to that extent. Flood insurance has limitations as to what is actually covered. For example, you know, 

basements may not be covered, but only the furnace and those essential utilities in the house would be covered. But, if you fix your 

basement that may not be covered on the flood insurance. 

And, you simply have to look at your policy as to exactly what’s 

covered. What’s not covered on the insurance you are eligible for 

an SBA loan. 

Mr. GOHMERT. Well, unless there is an exemption or exception 

for flooding caused by a local government failing to take care of 

itself by securing the levee that may allow it to flood, then I would 

think that if we had flood insurance on these businesses then flood 

insurance should come in and take care of that. 

Now, I think the people I know on this panel on both sides, 

Democrats and Republicans, are compassionate, we want to help 

people that are in need, but then again, we don’t want to rush in 

and make the Federal Government and the taxpayer pay for what 

an insurance company should have examined the risk and taken 

care of itself. And, I just haven’t really satisfactorily heard how 

that comes into play, if SBA is going to be taking the burden off 

of the flood insurance obligation. 

Mr. MITCHELL. Well, I’m not sure SBA has—the statute for us 

is that we can cover uninsured losses. The flood insurance policy 

prescribes what’s covered. They have flood insurance and they are 

reimbursed to the extent of what’s covered under that policy, then 

the loan can cover what’s remaining. 

Mr. GOHMERT. I do have an issue about fair market value. I don’t 

know how you go about assessing fair market value in an area 

where there are obviously no comparable sales within these conditions, and how do you go about assessing it? You know, we hear 

some people say there are so many chemicals and sludge and 

things that it shouldn’t even be used, and I’m not sure how you go 

about assessing that. 

Mr. MITCHELL. Well, that’s a good question, but there are two 

elements to that. When we actually go out to do the inspection, we 

are coming up with the cost to repair or replace that property. So, 

it’s the replacement cost that establishes the eligible loan amount. 

Fair market value only comes into play as to the value of the collateral that’s going to secure that loan, and, obviously, that’s going 

to be a tough figure to come up with. But, keep in mind, irregardless of the fair market value of the collateral value, if the business 

has the cash flow to repay that loan and satisfactory credit, we 

would still make the loan. 

Mr. MANZULLO. Ms. Sanchez? 

Ms. SANCHEZ. Thank you. 

23

Mr. Barreto, I want to bring your attention to a very alarming 

story that I think highlights the importance of today’s hearing, and 

this is a true story of what is happening in the Gulf Region. 

There’s an example of 75 electricians that came from New Orleans, Baton Rouge, and Lake Charles, Louisiana, who were hired by 

a local minority contractor, Allmight Enterprises, a few weeks ago 

for a $163 million project which was to last 21 months at the Naval 

Air Force Station in Belle Chasse, Louisiana, and they were going 

to wire a tent city that would house 15,000 military personnel. 

Four weeks into that project, BE&K, who was the overall project 

contractor from Birmingham, Alabama, and who I would note is 

also working for Kellogg Brown and Root, which is a subsidiary of 

Haliburton, they told the minority contractor and the 75 workers 

that their services were no longer needed. 

Workers later found out that they were released so that BE&K 

could replace those local workers and minority contractor with outof-state workers that would be paid half of what the workers were 

paid previously, because they had been paid the prevailing wage, 

and an electrician was being paid $28 per hour, including benefits, 

while the out-of-state replacement workers were paid only $14 an 

hour. 

Now, BE&K’s firing of the minority contractor and local workers 

in Belle Chasse, Louisiana, probably is not an isolated incident, but 

a growing trend in the Gulf Coast, where we see big corporate contractors come in and rob Louisiana workers and Louisiana minority-owned contractors of work and jobs to rebuild their own communities, and I want to share with you, when I talked with one of 

these workers whose voice broke and he was in tears talking about 

this experience, he said that the workers, the 75 electricians on 

that job had suffered devastating losses. Most of them were living 

in their cars and working on the job, and they had, basically, the 

clothes on their back while they were working on that job. Now, 

they no longer even have those jobs. 

And, we know that small businesses, sitting on this Committee, 

we hear it over and over again, are the economic engine that spurs 

economic growth and has the potential to revitalize the Gulf Region. 

So, while you testified today that you have these wonderful programs in place to try to help minority contractors find out about 

these opportunities, I want to know what is the Small Business Administration doing to ensure, not just that minority contractors 

know about these bidding opportunities, but that the local contractors and local workers are going to, in fact, get awarded these contracts and are going to keep these contracts when out-of-state contractors come in with workers that are willing to work for sub-par 

wages and kick and displace these already devastated workers off 

of these jobs. 

Mr. BARRETO. Was this a FEMA contract? 

Ms. SANCHEZ. I don’t know if it was a FEMA contract. 

Mr. BARRETO. Because I think I read something about that recently, and I don’t know that I have all the facts of this, but my 

understanding of what I have heard is that a contract was let, they 

wanted to immediately respond. There was a firm that didn’t have 

enough electricians to be able to respond to it, so they partnered 

24

with another firm. This must be the minority firm. And, they assumed that it was going to take X amount of time to do the work, 

and my understanding is that 60 to 80 percent of the work got 

done much quicker than what they thought it was going to get 

done. 

Now, if it’s a FEMA contract, I believe that the FEMA Administrator has said yesterday that they are going to go back and look 

at those contracts and make sure that, you know, there isn’t an 

egregious example where somebody is being taken out of a contract 

unfairly. 

In this particular instance, my understanding is that the contract 

was a temporary contract, again to supplement the existing workforce of the firm that had the contract. 

Now, you asked what we are doing, and we are doing a lot of 

things, but one of the things that we’ve done is that we have procurement center representatives, and those we refer to as PCRs. 

We’ve dedicated four of our PCRs full time to the Gulf Region to 

identify opportunities for small businesses, especially minority 

businesses, and we are asking all of the rest PCRs that we have 

across the country to assist in that as well. 

I mentioned in my testimony that I’ve also asked Judith Roussel, 

she’s a District Director from Chicago, from New Orleans, with a 

tremendous amount of experience working with small businesses 

and on contracting issues, to work with us, and I’ve detailed her 

now to New Orleans, she’s from New Orleans, so she’ll be perfect 

for this kind of responsibility. 

Ms. SANCHEZ. If I could just interrupt you, because my time is 

about to expire. I just want to say, though, that, you know, these 

workers were told 21 months and four weeks on the job they were 

let go. I have a hard time imagining that they would say it’s for 

a short-term duration, we think 21 months, oh, but the work got 

done much quicker, and four weeks after they were hired on they 

got let go. 

My concern is that we should be making sure that the first person to get these jobs are folks who have been devastated and lost 

everything and looking for economic opportunity, so that we have 

Louisianians rebuilding Louisiana, and Mississippians rebuilding 

Mississippi, and I’m not hearing that out of your testimony today. 

Mr. MANZULLO. Thank you. 

Ms. Kelly? 

Ms. KELLY. Thank you, Mr. Chairman. 

First of all, Mr. Barreto, I want to tell you that I appreciate all 

the work that the SBA is doing in the Gulf Region to help recover 

from both Katrina and Rita. I am concerned, just like my colleague, 

Ms. Sanchez, though, about reckless spending, inappropriate 

spending, and the spending that goes to large corporations rather 

than to the small business people, and the skilled workers who live 

in that area who need to get the money back in their pockets. 

The reason for that is that the banks and the other people who 

depend upon the financial structures being there for them, banks 

can’t even do business if they don’t have anybody with money in 

their pocket to come into the door. 

So, I’m concerned that we do keep a focus on that. 

25

I wanted to know if—I had to leave, so I don’t know if you’ve answered this question, what kind of safeguards do you have to ensure that our taxpayer dollars that are going there are being used 

in such a way that they are going definitely down to these small 

businesses? 

And, as a corollary to that, I want to let you know that in the 

past the SBA has not been mindful of the fact that a lot of the SBA 

loans that are going out to people are larger, not small loans. There 

are businesses there that need $50,000, not $500,000. It takes just 

as much paperwork to do a $50,000 as a $500,000 loan, are you 

being mindful of that, sir? 

Those are two questions I’d like answers to. 

Mr. BARRETO. Absolutely. 

Well, and we agree with your context, Congresswoman. WE need 

to be judicious. We need to be careful. We need to make sure that 

there isn’t fraud and waste. I mean, you know, I think sometimes 

people forget that we have all of these safeguards built into the underwriting of these loans. You know, the truth of the matter is that 

sometimes people don’t want loans, they want a grant, and SBA 

can’t do grants. We do not do grants. 

In fact, this is another thing that sometimes people don’t realize. 

A lot of people come to the SBA to file their application so that 

they can be turned down by the SBA, so that they can go back to 

FEMA and get a grant. You know, that’s not always discussed either. There was a lot of people that applied to SBA because they 

have to, they have to be turned down by SBA before they can go 

back and get that grant. FEMA does those grants. 

Ms. KELLY. May I interrupt you and ask you one more question 

about that? 

Mr. BARRETO. Absolutely, sure. 

Ms. KELLY. How long does that process take? How long does it 

take you to deny or accept a loan right now? 

Mr. BARRETO. Yeah, I will let Herb talk about that, because that 

is one thing that we are very mindful of. We understand—we know 

the individuals that are not seeking loans, and we are very mindful 

that we need to give them a decision very quickly so they can go 

back to FEMA, and, Herb, do you want to talk about that? 

Mr. MITCHELL. Our target is to try to get people an answer within 30 days, and, obviously, there are exceptions, and there are exceptions for a number of reasons, either because we don’t have the 

documentation, we can’t gain access, or someone may have forgotten about a student loan that they had 20 years ago and we’ve got 

to clear that up, or there’s a delinquent federal debt that they 

haven’t filed. I mean, there are a whole host of issues that can 

come into the process, the underwriting process, that can deviate 

from that time frame that we try to work with the borrower to, basically, clear that up and get some satisfactory answers so that we 

can move on to a decision. 

Ms. KELLY. I want to ask, I want you to go on, I asked you two 

questions, actually. 

Mr. BARRETO. On the contracting side, you know, obviously, what 

we need to do is work very closely with the entities that are giving 

the contracts, and we do that. We have a great relationship, of 

course, with FEMA because we are co-partners any time there is 

26

a disaster, so we are working very closely with them and their procurement folks. We are working very closely with GSA, because 

GSA also puts out a lot of contracts. In fact, yesterday we made 

an announcement that GSA and ourselves had put together a dedicated 1-800 line for small businesses to call us if they want information, and also a website to go on and get information very quickly on how they can access these federal contracts. 

And, then again, I mentioned to you that we are not waiting for 

the small businesses to come to us, we are going to them. This 

business match-making initiative that we are launching in the Gulf 

States is starting immediately. Over the next month we are going 

to be registering people so that they can attend a business matchmaking event that we are going to be doing in the Gulf States. In 

fact, we have plans to do two of these events before the end of the 

year, and after we do those events we want this to be an ongoing 

initiative. 

We can use technology now to set up appointments for people, so 

we don’t even have to do an event in the area every week. After 

we do these events, and after we have a database of these small 

businesses, that we will receive from these economic development 

officials in these states, we’ll be able to stay in contact with them 

and help them facilitate contract opportunities on a going forward 

basis. This will be a priority, and there is going to be, as everybody 

on this Committee knows, a tremendous amount of work and procurement for years, and small business has to get its fair share of 

it. 

Mr. MANZULLO. Thank you. 

Mr. Lipinski? 

Mr. LIPINSKI. Mr. Chairman, is Mr. Melancon going to have an 

opportunity to ask questions? 

Mr. MANZULLO. If someone yields. 

Mr. LIPINSKI. Okay, let me, I will yield, let me take a few seconds, and then I’m going to yield my time to Mr. Melancon. 

My concern is that, yes, we face an extraordinary situation, extraordinary disaster, and what we need to be concerned about from 

this point forward is doing the best that we can to help small businesses who have been impacted by this. 

I worry that it has—SBA has been overwhelmed by this, but 

there’s an unwillingness to admit that it has been the case. I don’t 

see any political sin in admitting that, so that we can move forward from here, and maybe devote more resources to taking care 

of small businesses. 

But, with that, I am going to yield my time to Mr. Melancon. 

Mr. MANZULLO. Mr. Melancon, you have a little over four minutes. 

Mr. MELANCON. Thank you, Mr. Lipinski and Mr. Chairman. 

I would like to request, since I have a limited amount of time, 

that the SBA provide this Committee with the list of small businesses that are getting contracts, specifically, for me, for Louisiana, 

I would think that Mr. Taylor would like Mississippi. 

There are workers being hired, you said, substantial numbers by 

SBA, can you tell me exactly where these people are? 

Mr. BARRETO. Sure, absolutely. 

27

Well, we’ve talked about the numbers, they are in a number of 

different locations. Every time a disaster recovery center opens, 

and as you know, well, we have over 60 now, but in the very beginning there was only a very few, but every time one of those centers 

open we deploy our people to those centers immediately. So, we 

have people right now in those 60 centers, several hundred people 

in the affected areas. 

Of course, we have people that are also working out of our processing center in Fort Worth, Texas. We have a lot of people there, 

because they are the ones that are responsible. All of the applications are going there, so we have all of the people that are responsible for inputting the information, processing it, processing the 

loans, customer service. Of course, we also have people in our call 

centers. We have a couple of call centers, one in Buffalo, New York, 

and an overflow in Sacramento. 

Mr. MELANCON. Mr. Barreto, since I have a limited amount of 

time, and I appreciate the preponderance of information, but the 

information I’m trying to get is, are there Louisiana folks, is there 

a Louisiana office, are they being deployed and put to work? These 

people have nothing, no home, no nothing. 

Mr. BARRETO. I agree. I was recently in Baton Rouge in our recovery center there, and actually I was also in Gulfport, Mississippi 

a couple of weeks ago. Wherever possible, we are hiring local people. We have a number of local people that are working with us in 

those areas, too. 

But, to give you specific information, I’d like Herb Mitchell to 

talk about where our assets are deployed, and how we are going 

about also reaching out to the local community so that we can hire 

them. 

Mr. MELANCON. Herb, would you just give me numbers? I don’t 

need to take all that down. 

Mr. MITCHELL. I don’t have the numbers. We’ll get the numbers 

for the Committee. 

Mr. MELANCON. That’s fine. 

Mr. MITCHELL. But, keep in mind, we are going to be increasing 

that number. 

Our strategy in any disaster is to go in and, obviously, deploy 

wherever we can get people. As we then continue to staff up, it’s 

to hire locally, and then get people off of travel status and hire 

local folks. So, I mean, that process continues throughout. 

Mr. MELANCON. If you could just try and get me that. 

My numbers that have been given to me, and I’m told that they 

ought to be pretty accurate, in Florida last year after the hurricanes I’m understanding that the SBA loan rate approval rate was 

at 94 percent, and I’m understanding right now in Louisiana it’s 

at 2 percent. 

Mr. BARRETO. It’s never been 94 percent approval rate. It usually 

averages, and Herb can talk to this, about 50 percent, and again, 

I want to restate this, not everybody that applies for SBA wants 

a loan from the SBA. Some of them want grants, and they go back 

to FEMA, some of them change their mind and they decide not to 

take the loan. So, there are a number of different issues at play. 

But, we’ve never had a 90 percent approval rate. 

28

Mr. MELANCON. And, not on average you don’t, but I’m just telling you what the numbers I’ve been told. 

So, another question that I would like, or request I would like 

to make is, I’d like to see from Florida how many applications were 

made, how many were turned down, from Louisiana to date, how 

many were made, how many were turned down. And, some of them 

may be going back because they want the FEMA, but, you know, 

that’s probably going to be footnoted, that it is believed, because 

you said you know who they are. 

Mr. BARRETO. We’ll get you the information, absolutely. 

Mr. MELANCON. Hector, you were talking about insurance, that’s 

going to be a whole other calamity, because the property and casualty carriers are looking for every option to get out. The most you 

can buy is $250,000 of flood insurance, and if you’ve got a small 

businessman that’s got a million dollars invested he’s in French 

speaking card play, he’s burried. 

As the big contractors have been hiring people— 

Mr. MANZULLO. I’ve got to move this along, we’ve got an hour of 

votes coming up in a half an hour. 

Mr. MELANCON. Thank you, sir. 

Mr. MANZULLO. Ms. Musgrave? 

Mrs. MUSGRAVE. Thank you, Mr. Chairman. 

I would like to know, you mentioned that homeowners’ loans 

were the biggest category so far, has the demand on personnel for 

that in any way caused a problem for small businessmen that were 

seeking loans? Do you have adequate personnel to handle both of 

those? 

Mr. BARRETO. Absolutely. 

You know, we’ll process any loan that’s coming to us, so, I mean, 

we are not, you know, segmenting the loans. It just happens that 

there’s a lot more small businesses in any area when there’s a disaster, so you are going to get a lot more. 

We think, and Herb can speak to this, we are seeing a higher incidence in this particular case, you know, 8:1 right now is what we 

are seeing, but there is nothing in our resource allocation that 

would prevent us from being able to process any loan that we get 

from a small business person. 

Mrs. MUSGRAVE. I’m really concerned about the cost of housing 

for federal employees, some of us were a bit amazed when we 

heard about a contract with Carnival Cruise Lines, and what that 

was costing. So, what kind of oversight are you exercising in regard 

to these overhead costs? 

Mr. BARRETO. Well, I’m not sure, with regards—the oversight 

that we do exercise is with our own employees, and that’s an issue 

for us as well. In fact, in the very beginning of the disaster, you 

know, we had people that were literally driving two hours each 

way every day because there was no place to stay. Now some of our 

folks, especially the folks in the local areas, for example, we have 

an office in New Orleans, our regular district office, but every one 

of those employees that’s in that district office was a victim as well. 

Now, they want to get back to work, and we have them working 

in other offices, but they want to get back to work in New Orleans 

to help the small businesses in New Orleans, but they’ve had no 

place to stay. So, we are working with FEMA to get them trailers. 

29

Obviously, this is on a voluntary basis, but a lot of our employees 

are passionate about this, they are committed about this, they 

want to be back in that area. 

The same thing happened to us in Gulfport. You know, we had 

employees in Gulfport, we had a satellite operation there, but Gulfport had tremendous amounts of damage. And so, we are working, 

we’ve got them in another office. There’s another office of the local 

government that kind of adopted us, and so we’ve got our SBA employees in that office as well. 

So, you know, that has been a challenge for us also personally, 

in terms of, especially in the heavily-damaged areas, where do our 

people stay, where can they stay, and so we are working through 

those logistics as well, and making sure that we are policing it, and 

that there is no egregious, you know, expenses for this. 

But, do you want to comment on what we are doing to get— 

Mr. MITCHELL. Everybody in travel status has to be authorized, 

and they are authorized based on the Federal Travel Regulations, 

and, obviously, in every disaster, and more so in this case, there 

is increased allowance for housing. 

But, the reality is, housing, at least initially, was not available, 

and Hector has already mentioned, we had people sleeping in tents, 

we’ve had people sleeping in schools, ten to a room. We, basically, 

have rented apartments where there’s no furniture, and we’ve 

issued blankets and everything for them to sleep on, but the challenge is, it’s just the lack of availability of places to stay. 

When we were there recently, we had to, basically, stay in Houston in order to get to Baton Rouge, and fly back and forth each day. 

Mrs. MUSGRAVE. Do you have any employees on ships? 

Mr. MITCHELL. I’ll have to check, I’m not sure, but we can check. 

You are referring to the ship that FEMA provided in New Orleans? 

Mrs. MUSGRAVE. Yes. 

Mr. MITCHELL. Yes, we’ll check. 

Mrs. MUSGRAVE. Okay, thank you. 

I yield back the balance of my time. 

Mr. MANZULLO. Ms. Velazquez? 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Barreto, during your testimony on the Senate side, you said 

that the SBA will respond in days, no months. But, as of two days 

ago the SBA has received 4,569 business applications for loans. Of 

this, only 398 or 8.7 percent have been completed, processed by 

SBA. Can you please explain to us why is the SBA taking so long 

in processing so few applications? 

Mr. BARRETO. Well, we have responded, and I mentioned to the 

Senate, I believe I mentioned here, is that even before the disaster 

happened we were already bringing people on board, staffing, getting ready. 

Now, one of the things, as you know, that we can’t be in the area 

where there’s a disaster until FEMA sets up a center, and so that 

was one of the things that kind of slowed down the process in the 

beginning. 

Now, the other challenges, and this is particular to this disaster, 

is that we have to go in and look at the property. We have to do 

an investigation, and we had a lot of challenges with that as well. 

Ms. VELAZQUEZ. Let me, if I may. 

30

Mr. BARRETO. Sure. 

Ms. VELAZQUEZ. What about the 17,000 site visits that you have 

completed? So, if you follow the trend of approval loans in previous 

disasters, it is about, and you said it before, 45 to 50 percent. 

Mr. BARRETO. Right. 

Ms. VELAZQUEZ. Well, that will have given you at least 7,000. 

Mr. BARRETO. Well, Congresswoman Velazquez, there’s never 

been a disaster like this in history. You know, one of the things 

that we have to get is information from them. 

Ms. VELAZQUEZ. Okay. 

Mr. BARRETO. Sometimes people have— 

Ms. VELAZQUEZ. I know, I know— 

Mr. BARRETO.—lost their information, and we are working with 

them to be able to produce that. 

Ms. VELAZQUEZ.—let’s move on. 

Mr. BARRETO. Okay. 

Ms. VELAZQUEZ. Tell me about the EIDL. Why hasn’t the SBA 

processed the 338 EIDL applications? They do not require visit 

sites. 

Mr. BARRETO. No, they do not, and, you know, every EIDL application that we received we are processing. In fact, it’s less than 1 

percent of all the applications that we’ve received so far are the 

EIDL applications, but EIDL is economic injury, they are economic 

injury disaster loans, it’s not physical damage, it’s business that 

they have lost. And so, one of the things that we are working with 

them is to establish what the revenues that they’ve lost are. 

One of the reasons that we allow people to apply longer for EIDL 

is because often times they are not going to know for a period of 

months how much business they have lost. It takes some time to 

be able to really verify. And, a lot of times people say, look, I don’t 

want to ask for too much, and I don’t want to ask for too little, I 

want to ask for what I need. 

Ms. VELAZQUEZ. Okay, you answered me. 

Is the SBA doing anything different that will adversely affect approval rates for businesses seeking disaster loans? 

Mr. BARRETO. To our knowledge, we are not doing anything that 

would adversely affect the processing and approval of any disaster 

loans. 

Ms. VELAZQUEZ. Okay. 

I’m asking you this, because as you can see from the chart that 

we have there, the approval rate for business loans from Katrina 

as of two days ago was 8 percent, 5 percent for business. That 

means that SBA has declined 92 percent of all loans, 95 percent 

of business loans. 

In previous disasters, the approval rate was much higher. For 

Hurricane Ivan, the approval rate was 49 percent, for Francis it 

was 39 percent, for Hurricane Charlie it was 46 percent, and the 

list goes on. 

So, why is it that SBA only is approving 5 percent of business 

loan applications for this disaster? 

Mr. BARRETO. Because the chart is comparing apples and oranges. You know, in previous disasters, every application that came 

in somebody was looking at it, and often times what would happen 

is that our people in the field would not even put it in the system. 

31

In other words, they had the authority to look at an application 

and say, this application, should we process it, are we going to be 

able to approve it, and many, many applications never made it into 

the system. Now that we have an automated system, all of the applications are going in, applications that before would have never 

even been processed before because the individual might not qualify for a loan, now those are going in the system and that is skewing the percentage. 

Ms. VELAZQUEZ. But, why could you say that this is comparing 

apples and oranges? 

Mr. BARRETO. Because we have— 

Ms. VELAZQUEZ. The disasters in Florida were natural disasters, 

and this one is a natural disaster. 

Mr. BARRETO.—I’m not comparing the disasters, I’m comparing 

the system. The system that we have today versus the system that 

we used for every disaster prior to this. 

Ms. VELAZQUEZ. So, can you explain to me why only 5 percent? 

Mr. BARRETO. Sure. I’d like Herb to explain, because I think it’s 

very important to understand what the process was before, where 

somebody had to eyeball the application and many times the application never even made it into the system, versus now that we 

have an automated system, everything goes into the system. 

Mr. MITCHELL. I think that’s part of it, but the other key element 

here is, you have to compare the time frame, from the time the disaster was declared to this point in time for Katrina to the Florida 

hurricanes. 

If we go back and look at almost the same point in time, I would 

dare say it’s probably going to be very similar, because what happens is, the declines move through the process, whereas approvals, 

for example, and I’ve asked the staff to look at every one of these 

EIDLs and tell me exactly what status they are in, either we are 

waiting for the IRS transcript information, or we are waiting for 

additional documentation, and, in fact, probably more than half of 

them are at the stage where they are ready to be approved. But, 

it just simply takes a little bit longer to get the approval, and what 

will happen is that, as we go through this period the approval rate 

will go up. 

Ms. VELAZQUEZ. So, are you arguing— 

Mr. MANZULLO. Thank you, your time is expired. 

Mr. Barreto, you are excused. 

Mr. Brennan, I want you to have a seat up there and start with 

your testimony immediately. You have to catch an airplane. 

Mr. BARRETO. Thank you, Mr. Chairman. 

Mr. MANZULLO. While he’s doing that, Mr. Taylor, introduce your 

witness. 

Mr. TAYLOR. Thank you. 

Mr. MANZULLO. Thank you. 

Mr. TAYLOR. Mr. Chairman, I’d like to welcome actually two folks 

from south Mississippi, Mr. Brennan, although he works in New 

Orleans, has a home in Hancock County, as Mrs. Phil Ryan. We 

want to welcome both of them. 

I would hope that one of the things that they could talk about, 

that I think is very much going to affect business, is the problem 

of people who did not live in a flood zone, who did not have flood 

32

insurance, and have now found that they are not going to get any 

settlement from their insurance companies. And, I’ve got to believe 

this is going to have a profound effect on people’s pocketbooks and, 

therefore, on business. 

If they could work that into their testimony I would certainly appreciate it. 

But, we want to welcome both of them. 

Mr. MANZULLO. Okay, thank you. 

Mr. Brennan, you are up, five minutes. 

STATEMENT OF RALPH BRENNAN, RALPH BRENNAN 

RESTAURANT GROUP 

Mr. BRENNAN. Thank you, Mr. Chairman. 

Chairman Manzullo, Congresswoman Velazquez, and Congressman Taylor, I did have a house in Hancock County. It’s now rubble, 

unfortunately, thanks to Katrina. But, let me begin my remarks. 

Thank you, Mr. Chairman. 

Chairman Manzullo, Congresswoman Velazquez, and Members of 

the Committee, my name is Ralph Brennan I am the owner of 

three restaurants in New Orleans, Louisiana: the Red Fish Grill 

and Bacco in the French Quarter; and Ralph’s on the Park next to 

the City Park. I am testifying here today on behalf of the National 

Restaurant Association, which is the leading business association 

for the restaurant industry. The Association’s mission is to represent, educate, and promote a rapidly growing industry that is 

comprised of 900,000 restaurant and foodservice outlets employing 

12.2 million people around the country. I am also actively involved 

in promoting travel and tourism to New Orleans and the surrounding area and I serve as the Chairman of the Ernest M. Morial 

New Orleans Exhibition Hall Authority. Thank you for the opportunity to testify today about the impact of Hurricanes Katrina and 

Rita on small businesses in the Gulf Coast region and changes in 

federal policy that will help the region rebuild. 

Mr. Chairman, I’d heard about the storm that would wash away 

New Orleans for my whole life. I thought it would never happen, 

but it did. To see the destruction has been overwhelming. In addition to the devastation in New Orleans, I’ve also seen the devastation along the Gulf Coast in Mississippi which to me looks like a 

barren planet in a science fiction movie. It’s incredible. I feel a lot 

of emotion because of the impact on each of our lives. All of us left 

town expecting to return in two or three days and that our homes 

and businesses would be reasonably safe. Unfortunately, they’re 

not. We have to rebuild our entire city and the Gulf Coast Region, 

especially the hospitality industry in these areas. 

Unlike many restaurants in New Orleans and other areas of the 

Gulf Coast region that have been heavily damaged and destroyed, 

two of my three restaurants in New Orleans are now open, but 

with limited menus, partial staff and until today boiled water restrictions. Bacco had no gas until Wednesday,and we are using our 

wood-burning grills and ovens and a great deal of creativity to 

serve customers. To reopen the Red Fish Grill, I worked closely 

with Jim Funk, the head of the Louisiana Restaurant Association 

and the Louisiana Department of Health to draft modified health 

regulations which have allowed restaurants to reopen while proVerDate 0ct 09 2002 18:22 Jan 18, 2006 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 G:\HEARINGS\24847.TXT MIKE
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tecting the health of our employees and our customers. One of my 

biggest challenges is finding employees to staff my restaurants. 

Many of my staff have not come back to the city or have found employment elsewhere. The biggest short-term issue in this regard, 

particularly in New Orleans, is finding adequate housing for restaurant employees as 70 percent of the houses in New Orleans sustained water damage. 

The overall scope of the damage from Hurricane Katrina, followed by the destruction in southwest Louisiana caused by Hurricane Rita, is unprecedented. The areas most heavily impacted by 

Hurricane Katrina are home to about 6,800 restaurant and 

foodservice establishments, employing approximately 90,000 people. Annual restaurant sales for Louisiana, Mississippi and Alabama total $12.4 billion, about 2.6 percent of the $476 billion in 

restaurant sales nationwide. Louisiana fared the worst, with the 

destruction from Katrina, followed by the extreme damage in 

Southwest Louisiana caused by Hurricane Rita. Our 5,200 impacted restaurants employed about 67,000 people. The restaurant 

industry was the number one private employer in New Orleans before these hurricanes, directly employing 54,000 people and indirectly employing another 20,000 people that supplied the industry 

with goods and services. The travel and tourism industry represents over 650,000 jobs and more than $10 billion in payroll for 

the three impacted states. Eating out was frequently one of the 

number one reasons for visiting New Orleans. The city has a distinct cuisine that is a crucial part of its culture. In 2004, travel and tourism accounted for more than $50 billion 

in business activity in the region. In New Orleans, travel and tourism is a $5 billion-a-year industry, accounting for more than 80,000 

jobs. 

Mr. Chairman, with regard to changes in federal policy that will 

help the region rebuild, there exists an urgent need to assist small 

businesses, a number of whom are also restaurant supply companies and food purveyors who are facing a bleak future unless the 

restaurants and food service outlets they serve are able to open. 

In addition to the housing issue I talked about, some of the main 

challenges that restaurants are facing are: 

Lack of employees. Restaurants are typically opening with 30% 

of their former staff. There is a great demand for foodservice workers. We have only been able to open with 16 percent of our former 

staff. 

We have a lack of a customer base. In my area, Orleans Parish 

is still not repopulated and other parishes are only partially inhabited. To build back up to our former number of approximately 3.400 

restaurants, we will have to achieve a significant return of our population base. 

There are unresolved insurance issues. Many restaurateurs in 

the Gulf Coast region are having difficulties in getting their claims 

resolved and are even more concerned about whether affordable insurance can be obtained for the future. 

And re-establishing tourism and convention business is important. The hospitality industry played a significant role in the New 

Orleans economy before Hurricane Katrina. Re-establishing tourism can play a significant role in our recovery. 

34

Specific recommendations for important targeted and time-limited provisions to assist in the long-term recovery and reconstruction of the Gulf Region are included in my written testimony. 

Mr. Chairman, and Members of the Committee, thank you again 

for holding this important hearing and for focusing your attention 

on the plight of small businesses in the Hurricane Disaster Zone. 

The Committee has an important role to play in the hurricane relief efforts, and this hearing is an important step. 

Since Katrina, a lot of people have suggested that I open restaurants elsewhere, but I’m not going to do that. I’ve gone home 

and have reopened, and I plan to stay there. This Committee and 

Congress can help get New Orleans, Louisiana, and the entire Gulf 

Coast Region, back on its feet, so that all of our residents, 

restauranteurs and other small businesses, can go home again. 

I’d be happy to answer any questions. 

[Mr. Brennan’s testimony may be found in the appendix.] 

Mr. MANZULLO. Thank you. 

Ms. Ryan? Do you want to pull the mike closer to you? Thank 

you. 

STATEMENT OF RAE ANN RYAN, TRAVEL AFFILIATES 

Ms. RYAN. Mr. Chairman, and distinguished members of the 

House Small Business Committee. My name is Rae Anne Ryan and 

I am honored to appear before you today to convey the devastating 

impact Hurricane Katrina has had on small businesses, especially 

the travel and tourism industry, in the Gulf Coast region of the 

United States. 

But, first I want to recognize the efforts of the Administration, 

state and local officials, U. S. citizens and people from around the 

world. Without their assistance and generosity, we could not begin 

to recover, and the help just doesn’t stop. I’m here today through 

the help of Air Tran Airlines and Hampton Suites Hotel. We could 

ill afford to come away at this time. 

I am the president of Travel Affiliates in Gulfport, Mississippi, 

and co-own the agency with my husband, Phil. My full-service 

agency has been a member of the American Society of Travel 

Agents, ASTA, since 1967. The ASTA Travel Trade Association is 

the worlds largest and most influential, with more than 17,000 

members in 140 countries. 

Gulfport was severely broadsided by Hurricane Katrina. In these 

five weeks since the hurricane, Gulfport homes and businesses that 

were left standing now have power, but little or no phone service. 

Much of the infrastructure remains impassable with washed out 

bridges and roads. 

I, and four of my employees, have lost our homes to Katrina. 

Since the storm, two of my employees haven’t returned to work, 

and may not even return to the area. Sadly, this trend is echoing 

across the region. It represents the loss of thriving small businesses, a decreasing workforce, and challenges the area’s ability to 

recover and prosper quickly. 

Fortunately, my travel agency came through the storm without 

serious structural damage, but my current situation is not typical. 

Many of my colleagues spread across the Gulf Region who own and 

operate small business travel agencies like mine had roofs torn off 

35

and broken windows that let the wind and rain destroy everything. 

They are basically out of business. Regardless of where we are conducting our travel business, all we are doing is processing refunds 

for our clients. How can we possibly endure the next four to six 

months waiting for new travel business to surface. We need assistance to working capital in order to sustain businesses while the region rebuilds. 

The travel and tourism industry is a primary economic engine 

that drives the prosperity of the Gulf Coast. According to statistics 

compiled by the Travel Business Roundtable and the Travel Industry Association of America, the Katrina affected counties in Mississippi and Alabama, and the Parishes in Louisiana, supporting 

260,000 travel-related jobs generating $3.7 billion in payroll income. In 2004, the travel sales for the Gulf Coast Region was $18.3 

billion. 

Mr. Chairman, there are no easy solutions to restoring and preserving the Gulf Coast Region after Katrina. Immediate federal 

and state relief packages are needed to allow the people to rebuild 

their homes and small businesses. 

Reflecting back to the events of 9/11, I have this Committee and 

the SBA to thank for my agency’s survival. I successfully applied 

for, and my travel agency received, one of the 500 EIDL loans. It 

saved my business. 

As Congress formulates relief packages for small businesses in 

the Gulf States, it is essential to keep in mind that small businesses need working capital to survive. The SBA also has had the 

ability to increase the maximum size of SBA business and homerelated disaster loans from $1.5 to $10 million, allow for deferred 

principal payments up to 12 months on new or existing disaster 

loans, and provide debt consolidation and refinancing opportunities 

for small businesses. Most importantly, the SBA needs the resources and tools to act quickly and efficiently process disaster relief loans. 

ASTA endorses the elements contained in the SBA’s plans that 

were presented to the Senate Small Business and Entrepreneurship Committee on September 22, 2005. We believe it’s the best approach in enacting small business relief legislation. 

Thank you for inviting me to testify, and I’ll answer any questions. 

[Ms. Ryan’s testimony may be found in the appendix.] 

Mr. MANZULLO. Thank you for your testimony. 

Mr. Perkins. 

STATEMENT OF RANDY PERKINS, PERKINS PRODUCTIONS, 

INC. 

Mr. PERKINS. Chairman Manzullo, Ranking Member Velazquez 

and Members of the House Small Business Committee, my name 

is Randy Perkins and I am the co-owner of Perkins Productions in 

Covington, LA on the North Shore of New Orleans. 

Before I came in to address you this morning, I want you to 

know that I prayed for a couple of things, for clarity and wisdom, 

clarity to understand that I’m not just speaking for Perkins Productions, but for hundreds of thousands of small businesses across 

36

the Gulf South, and also the wisdom to share with you our desperate needs. 

My wife and I have been in business for 11 years now, and the 

two of us run our video production company out of our home, but 

we subcontract out to approximately 50 people in the area. Our 

business relies heavily on the customers and filming opportunities 

that exist right in the city of New Orleans, and that’s about 95 to 

97 percent of my business. 

The strong base which we depended so heavily on was turned upside down on August 29, 2005. That is the day Hurricane Katrina 

hit our city, and that is when the livelihood of our business came 

to a sudden halt. 

Not only were large sections of New Orleans largely destroyed, 

but so was our business. In the last 30 days my business has generated only $225 dollars. This is compared to an average monthly 

revenue of $18,000. With monthly bills totaling somewhere between $9,000 and $10,000 and virtually no income coming into our 

business, we needed to secure financial assistance elsewhere. 

On approximately September 9th, we decided to apply for an 

SBA disaster loan. It seemed to be the first, and one of the few, 

options available to us. All in all, it was really the only chance we 

had at getting assistance that would enable us to get through the 

rough period. My wife went ahead and took the time to fill out the 

paperwork and submit this application. I happened to bring a copy 

with me. We are lucky. We had five years of documentation, many 

businesses in the New Orleans area have lost everything. Once we 

had submitted this, she was then told it would take up to 90 days 

to receive the loan, once it was approved. However, it’s one month 

later, and I still haven’t been told whether we are going to get a 

loan, or even if they received my application. 

When there is no income coming in, business has all but stopped, 

and there are existing expenses and costs to cover , three months 

is just too long to have to wait for assistance. What we need, and 

most businesses in our similar situation, is immediate relief so we 

can start providing again for our families and investing in our local 

economies. 

An additional challenge that I have is an already existing loan 

payment that we have to make. We are in the 5th year of paying 

back an SBA loan. Right now, my wife and I are paying for a business that has lost the majority of its customer base. At this point, 

if there is anything that would help us financially it would be forgiveness of what we owe on the remaining loan payments. I know 

SBA had offered to suspend the payments, but the truth is that 

even if we don’t have to pay for a period of time, we are still going 

to be dealing with incurring debt on top of more debt when we 

start the payments again. The reality is that to have these payments forgiven would enable us to take care of the existing challenges we face day to day, moving forward with our production 

company, and continuing to serve our local economy. 

In the aftermath of Hurricane Katrina, obtaining financial assistance is at the top of the list for all small businesses. Given the extraordinary circumstances we have been faced with, grants are another option. Congress bailed out the airlines when they needed it. 

Small businesses that represent over 99 percent of employers, espeVerDate 0ct 09 2002 18:22 Jan 18, 2006 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\HEARINGS\24847.TXT MIKE
37

cially those from the Gulf Coast, deserve the same. The four loans 

that have been distributed in Louisiana so far are just not going 

to cut it. Grants are another solution to help remedy a situation 

that is not going away anytime soon. 

Small businesses in the Gulf Coast need assistance now. There 

are many who may not make it through if we don’t get immediate 

relief, and I’m one of those companies. From a business perspective 

my end goal is this, to get my firm up and running again, boost 

the local economy, pay the bills and at the end of the day have a 

little bit of money left to feed my immediate family, and also the 

four extra families that I’ve got living with me. 

This is why small businesses are relying so heavily on SBA during this time. 

In the past, I have had a great response from the SBA. As a matter of fact, this is my second SBA loan. They were always available, 

ready to listen and comprehensive of our business needs. However, 

post Katrina I cannot say the same. Throughout this ordeal SBA 

has become a very faceless agency to me. They aren’t making themselves readily available, and the assistance that they talk about 

isn’t reaching the people that need it most. 

It has been over five weeks now, and to this date my wife and I have received nothing more than a $2000 FEMA check. Waiting 

three months for a disaster loan, that might come through, will add 

more debt upon more debt, is going to be too little, too late. All of 

the businesses that were devastated by the hurricanes need help, 

and I beg of you, they need help today. 

I want to thank you for allowing me to appear before the committee today and letting me share my story. At this time, I will be 

glad to respond to any questions you may have. 

[Mr. Perkins’ testimony may be found in the appendix.] 

Mr. MANZULLO. Thank you, Mr. Perkins. 

Mr. Williams? 

STATEMENT OF GUY T. WILLIAMS, GULF COAST BANK AND 

TRUST 

Mr. WILLIAMS. Mr. Chairman, Ranking Member Velazquez, and 

Members of the Committee, my name is Guy Williams. I am president and CEO of Gulf Coast Bank, I’m here on behalf of the American Bankers Association and small business in the metro area. I 

am both the small businessman and the leading lender to small 

business in South Louisiana. Our bank is the largest SBA lender 

in the State of Louisiana. I want to tell you where we are. 

25 percent of my employees have lost their homes. My parents 

lost their home, my sister lost her home. We have three families 

living together. My brother came over to help from Lake Charles, 

Rita struck and his wife’s business was severely damaged, so he 

went back to Lake Charles. 

Fortunately, our main office was undamaged. 

Mr. MANZULLO. Mr. Williams, would you take a sip of water, 

please. 

Mr. WILLIAMS. Thank you, I’m sorry. 

Mr. MANZULLO. Go ahead. 

Mr. WILLIAMS. Fortunately, our main office was undamaged and 

we reopened last week. We were the first bank to reopen downVerDate 0ct 09 2002 18:22 Jan 18, 2006 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 G:\HEARINGS\24847.TXT MIKE
38

town. We had two small businesses come in. One a sandwich shop 

looking for change so they could open, another one who wanted to 

make a loan payment, God bless him. 

We are doing things differently now. We have Fidelity Homestead operating in our lobby downtown. We are opening Monday in 

St. Bernard Parish. We’ll be the first business back in St. Bernard 

Parish. We are excited to do that, and we are happy to be there 

to contribute to the redevelopment in that Parish. 

But, I want to make two key points. Small business is the heartbeat of Louisiana. We are not a big business state, we only have 

one Fortune 500 company, that’s Entergy, and they recently placed 

their New Orleans subsidiary, Entergy Services, in bankruptcy. 

Small business is it in Louisiana, and we need help right now. 

I couldn’t agree with my fellow witnesses more, we need help immediately. The paperwork is too slow, response has been too slow. 

The New Orleans Times Picayune had an article this week, SBA 

slow to the rescue. The Wall Street Journal yesterday, in the New 

Orleans area as many as 30,000 businesses are significantly at 

risk. The SBA has said the agency is working. The New Orleans 

Chamber has said they were told it will take four to five months 

to get money in hand. 

Two examples, we started a small business in Chalmette, World 

of Wings, not as nice as Mr. Brennan’s restaurants, but well received, and they were doing great. Their business today looks like 

this, you have it in your package, that’s the mud on the floor. They 

can’t reopen. They are in leased premises. The insurance is not 

going to pay them the full value of their damage. We need to give 

help to them. 

Another small business in Chalmette, a young man returned to 

Chalmette from Afghanistan, and he started a technology business. 

His insurance is going to pay him depreciated value. Surely we can 

help him. 

Now, we have some ideas of how this could be done effectively. 

First, there are certified and preferred SBA lenders. If SBA will 

allow us to originate disaster loans, we can speed this process. We 

are audited. We have financial integrity. We know how to process 

SBA paperwork. If you pay banks a small fee, say 2 percent, to 

originate these loans, we could originate the disaster loans, if we 

originated all of them for a cost of about $40 million the 4,000 employees that the SBA is proposing to hire, when you factor in their 

total cost for a year, including salaries, that will be about $200 million. It would both be cheaper, and it would be faster, and it would 

spread the work around. 

We all know that the SBA cannot handle this work right now, 

and I’m not critical of the SBA, they are overwhelmed, everybody 

is overwhelmed. Right now, the Red Cross lines up people to get 

service. They can handle 1,200 a day. As I drive in to work, usually 

between 6:15 and 6:30 in the morning, they make an announcement, we’ve reached our limit. So, people sleep in their cars. They 

are opening one disaster center in New Orleans. We appreciate it, 

but if those people work day and night they can’t handle the need. 

Let us, as a banking industry, share the work. This is a cost effective solution and it will work. It will speed the process and it 

will be more efficient. 

39

Second, 7[a] loans that are severely impacted, like the gentleman 

at the end, let those loans be turned into the disaster program and 

the amortization extended. 

Third, I agree with some of the Chairman’s ideas on greater 

flexibility, we as a banking industry support that. 

Fourth, collateral requirements could be waived and should be, 

not reduced, but in some cases people don’t have anything else to 

put up, they put everything on the table to start their business, but 

the businesses were doing well, they’ll do well again if we can give 

them a start. 

And finally, we do need to allow simpler documentation. Some of 

these businesses, particularly in St. Bernard, have lost their location and their CPAs are gone. 

Members of the Committee, thank you for— 

[Mr. Williams’ testimony may be found in the appendix.] 

Mr. MANZULLO. Thank you, Mr. Williams. 

We are going to have votes in ten minutes. I’m going to take a 

few minutes and then Ms. Velazquez. 

I read somewhere, I thought it was in one of your testimonies, 

and perhaps not, that the State of Louisiana had instituted itself 

some bridge loans. Is that correct? 

Mr. Williams, you would know about that. 

Mr. WILLIAMS. No, that’s not correct. 

Mr. MANZULLO. Okay, all right, thank you. 

One of the problems, and I think you heard the testimony of the 

Administrator with regard to disbursement of the loans, is the 

question of certification by the Army Corps of Engineers as to the 

integrity of the levy. That’s necessary in order to get insurance in 

place, and that has a lot to do with it. 

Mr. WILLIAMS. And actually, there’s a lot of confusion. None of 

the levies broke, the canals broke that serviced the city. There’s a 

simple solution, it’s used in Holland, you put flood gates at the end 

of the canals. That’s a proven technology. We can argue a long time 

about that, but if we are going to wait for the Corps to build Category 5 levees you might as well just close New Orleans. 

Mr. MANZULLO. Well, that’s a big problem, because the issue 

there is whether or not the taxpayers of this county should rebuild 

New Orleans, partially or in whole, until there is a process whereby the integrity of those levies can be assured. This is a risk for 

everybody, and being a banker you obviously have that risk also 

with regard to your conventional loans. 

Mr. MELANCON. Mr. Chairman, if I could just make one comment 

on that. The integrity of the levies are overseen, and engineered 

and approved by the Corps of Engineers. 

Mr. MANZULLO. That’s correct. 

Mr. MELANCON. And contracted. They are doing the job. 

Mr. WILLIAMS. The levees actually didn’t fail, once again. There 

is a simple solution, it’s flood gates as used in Holland, but I don’t 

think we can stop— 

Mr. MANZULLO. I understand, the legal problem is insurers willing to underwrite in an area, even though they don’t write the flood 

insurance, in an area as to which they have no certification as to 

the integrity of the levees. That’s what differentiates this disaster 

from all the other disasters. 

40

Ms. Velazquez, I want to go to you since we are running out of 

time. 

Ms. VELAZQUEZ. I just would like for the record to reflect the fact 

that on this side of the aisle, Democrats, we are committed to rebuild Louisiana, and to make it even better than it was, all of the 

region, but, you know, I’ve been hearing all these comments and 

statement about questioning the fact if we should rebuild Louisiana. 

Mr. Williams, what do you expect the impact of Katrina to be on 

your loan portfolio, which I know includes a significant number of 

7[a] loans. 

Mr. WILLIAMS. If we don’t get some help it will be devastating. 

In St. Bernard, we have 65,000 residents and not one habitable 

home. There’s not an electric light bulb burning in St. Bernard 

today. 

We’ll be the first business open when we open on Monday. 

Ms. VELAZQUEZ. Do you have any recommendations to the Committee? 

Mr. WILLIAMS. Let us approve the disaster loans. We can do the 

work. We are certified. We have audited by the SBA. We can speed 

the process. We know who needs it. We’ll get it done fast. 

Ms. VELAZQUEZ. Mr. Williams, there are $2 billion worth of SBA 

loans in the hurricane affected region, and there is the potential of 

$500 million of these loans to default. If default costs by Katrina 

lead to higher program costs for the 7[a] program in the next year, 

how will your bank handle that? 

Mr. WILLIAMS. Banking is a leverage business. If we lose money, 

then we’ll be less able to help people in the future, and it will reduce our flexibility and our ability to provide financial resources. 

Ms. VELAZQUEZ. Thank you. 

Mr. Perkins, I understand you filed for an SBA disaster for your 

business nearly—yes, Mr. Perkins, I know that you testified that 

you applied for a business loan, a small business loan, 30 days ago, 

and as far as your request for financial assistance how would you 

characterize the response by SBA? 

Mr. PERKINS. Well, I want to realize that time is a big blur for 

everyone down in that area right now, so I can’t tell you whether 

it was a week ago or two weeks ago. We tried to follow up with 

the SBA by making a phone call, and we called to the Atlanta Division to talk about the loan process and if there were any other options. 

We were referred to Arkansas. Arkansas referred us to Texas, 

and Texas referred us back to Atlanta. At that time, we hung the 

phone up. 

Ms. VELAZQUEZ. Would you say that you and your fellow business owners are discouraged by the fact that you have to fill out 

a lengthy application, which the SBA is telling you might take 

three months, and then on top of that you heard in today’s hearing 

that they decline rate right now is 95 percent. 

Mr. PERKINS. Well, today has been eye opening for me. I have to 

say that. I had a decision when I came here today to decide whether I’d keep my business in the New Orleans area, or whether I’d 

leave, or whether I would fold it. I have to think long and hard 

going home. But, before I left Louisiana, I talked to a mortgage 

41

company owner. He told me that he received the application like 

I did, and we filed through the FEMA process and got the application, that he looked at it, threw it in the trash because he said it’s 

too much documentation. I don’t have the time. I’m worried about 

cutting trees out of my houses. I’m trying to get food on the table. 

Ms. VELAZQUEZ. Mr. Perkins, let’s assume that you get a disaster 

loan from SBA. Is that loan going to be enough to ensure that you 

get the business back on track? 

Mr. PERKINS. I don’t think the face of my business is going to be 

the same for years. If I get a loan, and I still, I question incurring 

more debt upon more debt, but in these sorts of situations I do 

have to do, I am willing to make a commitment to stay, and build, 

and retool, and reshape my business. 

Ms. VELAZQUEZ. Thank you. 

And now, I yield my time to Mr. Taylor. 

Mr. TAYLOR. I want to thank the gentlewoman. 

Rae Ann, please forgive me for forgetting your name, but I will 

never forget that 16 years ago right now, on extremely short notice, 

you got 300 people up here for my swearing in ceremony, so thank 

you very much for that. 

Ms. RYAN. You are welcome. 

Mr. MANZULLO. Mr. Bartlett? 

Mr. BARTLETT. Thank you very much. 

Mr. Chairman, I don’t think there was a single individual or organization going into this that said, gee, I, we, are going to screw 

up the response to and the recovery from these hurricanes. I think 

that every individual and every organization did what, at the time, 

they thought was the right thing to do. 

Obviously, we could have done better, and I hope that the response to this is not going back and pointing fingers and fault finding, but without any recriminations just seeing how we can do it 

better next time, because there will be a next time. 

Mr. Chairman, I have just one little pet thing that really bothers 

me in events like this. Imagine that I’m a homeowner in Mississippi, and my home is flooded, and I come back and I see a big 

red thing on the door that says you can’t go in there. You know, 

as a private property owner, I’m having a big problem with some 

bureaucrat telling me that I can’t go back into my house, and I 

can’t live in my house. I don’t have any problem, Mr. Chairman, 

with the government telling me, we’ve inspected that house and we 

are not sure it’s safe, and if you go back in there you go back at 

your own risk, but I understand they are telling the homeowners 

that they can’t go back into their house. Is that true? And, if that’s 

true, am I the only one in America that has a problem with Big 

Brother? I just think that there’s such a thing as property rights, 

you know, and, you know, you tell me that my home is not safe, 

and then you leave it up to me whether I want to go, but you are 

not my caretaker, thank you. 

Mr. BRENNAN. Well, I think, if I can answer that question, I believe what the Mayor was trying to do was have each building that 

was severely flooded inspected for structural integrity. 

Mr. BARTLETT. Still, if the thing falls on my head, sir, that’s 

my—you tell me, I think it may fall on your head. 

Mr. BRENNAN. Oh, I agree. 

42

Mr. BARTLETT. So, I go in at my own risk, is that okay? 

Mr. BRENNAN. I believe the Mayor allows you to go in at your 

own risk, but they did mark each building that they believed had 

structural problems, so that when the homeowner returned that 

the homeowner would then know that he was entering at his own 

risk. 

Mr. BARTLETT. If that’s all they did I’m happy with that. 

Mr. BRENNAN. That’s my understanding. 

Mr. BARTLETT. I want them to do that. 

If they went the next step and said you can’t come back, then 

I’m having a big problem with that. 

Mr. BRENNAN. And, if I could add something, I mean, I’m not—

this hasn’t come out yet, but New Orleans hasn’t been repopulated, 

and in my remarks I said about 70 percent of the homes and businesses had water damage, those people just started to return to inspect their properties now. So, if there are issues with SBA and 

other programs that are taking place, there’s an opportunity to fix 

it, because only a small portion of New Orleans, a city of approximately 450,000 people, has begun to be repopulated. And, I happen 

to have a home in there and a business in that area, and they are 

coming back very slowly in our area. 

So, it’s going to be a while, and SBA will have—should have 

some time to catch up if they move quickly. 

Mr. BARTLETT. Mr. Chairman, there’s one other lesson I think we 

might learn from this. I remember watching my television night 

after night, and they were televising from the French Quarter, and 

there wasn’t any water there. I understand there never was any 

water there, is that correct, and yet there was nobody there. 

Now, there wasn’t any reason anybody had to leave the French 

Quarter if they had had food, if they had had water, if they had 

had sanitary facilities, and if they had had some power for lights 

or something. And, I hope that one of the lessons we learn from 

this is that people need to be told that they can prepare and should 

prepare, because we have a whole lot of people out there homeless 

today who wouldn’t have needed to be homeless if they had made 

some preparation. 

Don’t you agree? 

Mr. BRENNAN. Well, actually I’ll try to answer this too, I believe 

the Mayor called for the mandatory evacuation, not because of the 

potential of flooding, but rather because of the potential of wind 

damage. We had 150 to 175 mile an hour winds threatening the 

City of New Orleans. 

And, as was said here, we’ve never had a levee break like this 

before, and it was not the main levees that protect us from the lake 

and the river, but rather the internal canals that broke. 

But, I believe the Mayor’s mandatory evacuation was based on 

wind, and not the threat of flood. 

Mr. BARTLETT. There are many buildings that have safe parts of 

the building, even for wind damage, and again, personal property 

rights and personal responsibility give me a big problem when you 

tell me I’ve got to leave my home. You tell me we think you ought 

to leave your home, that’s okay, but tell me I’ve got to leave my 

home? 

43

Mr. PERKINS. Sir, if I could address you just a moment. I went 

into New Orleans approximately two weeks afterwards, and it’s not 

a place you’d want to be. 

Mr. BARTLETT. That may be true, sir, but I’d like that to be my 

decision. 

Mr. PERKINS. I understand. 

Mr. BARTLETT. Not yours. 

Mr. PERKINS. I understand that, but, you know, you talk about 

the television press and all that, showing that, I’m in the video production business, and I can tell you that my video camera cannot 

in any way, shape or form, demonstrate the devastation that’s in 

that area. 

I’ve gone into some homes that have had 9 foot of water in it, 

and it’s the stink, it’s the disease, it’s the smell, and people are 

going to get sick if they go back in those homes. 

Mr. BARTLETT. Thank you for telling me that, then let me make 

my own decision. 

Thank you, Mr. Chairman. 

Mr. MANZULLO. Okay, I made a decision, Ms. Bean you are up. 

Ms. BEAN. Thank you, Mr. Chairman. 

I guess, first of all, know that on the Small Business Committee 

we are very committed to being advocates for small businesses 

which is our stimulative engine, and given the economies that you 

are dealing with that have been wiped out it’s so important that 

we focus there. 

We’ve heard a number of the challenges that you are facing. Obviously, the infrastructure of the city itself, local or internal operational challenges, some businesses have been devastated internally, some have not, housing for employees. Of those things, I’d 

like to hear what’s the number one issue? Is capital the issue, or 

is it first making sure that the area, and the infrastructure, and 

the phone lines, and the housing, is it personnel and infrastructure 

more than capital, or does capital come up first in what’s holding 

you up? 

And, I guess the other thing is, what percentage of your customer base do you think will return, because, particularly for Mr. 

Perkins, who said, you know, your revenue stream has gone away, 

and it sounds like you could move forward, but if your customers 

don’t come back then where are you really headed. 

So, what percentage do you think is viable to count on as a returning customer base? 

Mr. PERKINS. Well, what we are looking for, I’m fortunate, I had 

utilities back up in two weeks, my phone lines were back, I have 

Internet access, and things of that sort. I’m looking for work, that’s 

the biggest thing that I have. 

My business is going to have to take a new face. It will be quite 

some time before the New Orleans base will come back. I’m going 

to have to reach tentacles out. I’m also going to have to take a new 

look at my business, and maybe do a spur, restore home videos and 

things of that sort, but I need capital to buy a $10,000 machine 

that will allow me to do that. 

So, realizing that I’m willing to make the commitment that I’ll 

keep my business there, that eventually, eventually, I don’t know 

when that is, is it six months, is it a year, is it five years, it will 

44

come back, but I want to stay there so I am positioned to regain 

my business. 

Ms. BEAN. So, capital is your number one issue. 

Mr. PERKINS. Capital is number one. 

Ms. BEAN. What about the rest of you? 

Ms. RYAN. I have to say that, and maybe it’s just the female 

mother of me, but my workforce, everyone I come into contact with, 

is so focused on having clothes to wear, having the health of their 

family, being able to get from point A to point B, the infrastructure 

has been a real problem. 

The sales people that call on me selling me advertising for the 

Sun Herald, doing television commercials, that kind of thing for 

me, those sales reps can’t even go out and do their job. Phones are 

down, they can’t drive anywhere, the cost of gas, the length of time 

in traffic. 

So, for us, the infrastructure, I’d almost have to say, would be 

number one, but can we do both at the same time? 

Ms. BEAN. We hope to multi task, but, obviously, we don’t want 

to leave any critical areas out by just focusing on capital. 

It sounds like we are being called. Thank you. 

Mr. MANZULLO. Okay. 

We concluded. Let me just conclude on this note. With regard to 

the decline rate, the approval rate on the other hurricanes was 

after the completion of all the applications and consideration, the 

decline rate at present by the SBA, that’s still a work in progress, 

so you can’t compare the two of them. In the end, it will probably 

come up to about the same decline rate or approval rate as the 

other hurricanes. 

I want to thank you all for coming. We made it under the bells. 

We have a tierney of bells here. Thank you for trekking the long 

way from Louisiana, and Mississippi— 

Ms. VELAZQUEZ. Mr. Chairman? 

Mr. MANZULLO.—and thank you both for coming—yes, Ms. Velazquez? 

Ms. VELAZQUEZ. I just would like to clarify something here. 

There is not a relation between the volume and the approval rate, 

and in previous disasters there’s not such correlation. So, volume 

and approval don’t track each other. 

Mr. MANZULLO. Well, we don’t know that at this point. 

Ms. VELAZQUEZ. Yes, we do, we have the data. 

Mr. MANZULLO. In any case, thank you for coming. 

This hearing is adjourned. 

[Whereupon, the hearing was adjourned at 1:17 p.m.]

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